Report by Valanium Analysts: Yutaka Matsumoto, Yuichi Murakami, Michio Okazaki (firstname.lastname@example.org, email@example.com, firstname.lastname@example.org ) Investment Recommendation: MARKET OUTPERFORM December 3, 2001
NYSE (11/30/00) 52 week range Revenue (2002 Est.) Market Capitalization Share Outstanding
$ 76 $ 54.59 - $92.35 $ 60.08B $ 37.02B 487.2M 0.55% 34K
EPS Forecast FYE 12/30 EPS Ratios Forward P/E Forward PEG M/B
2001A 2002E 2003E 2004E $3.85 $5.49 $5.88 $6.27 Firm 12.42 1.96 1.97 Average of Competitors 21.47 3.95 1.73
Dividend Yield Avg. Daily Trading Volume
Book Value per Share (9/2001) $38.7 Return on Equity 13.02% Return on Assets 4.75% Est. 5 Years EPS Growth Rate 6.35% Industry Automobile
Valuation Predictions Actual Current Price $ 76 P/E Valuation (Ordinary) $ 131.38 P/E Valuation (Segment Adjusted) $ 119.46 PEG Valuation $ 153.5 M/B Valuation $ 66.58 EBO (Abnormal Earnings) Valuation $ 43.97 DCF Valuation $ 84.71 Performance of HMC 52 week change of HMC Return on S&P 500 8.1% -16.8%
Investment Summary • We assign a rating of market outperform on Honda Motor Company at its current price of $76 and a 12-month target price of $85 (based on DCF valuation). • Comparative P/E and PEG analysis also show that Honda is undervalued compared with its competitors such as GM, Ford, Daimler-Chrysler, etc. • We expect Honda’s market share in the Northern American market, where Honda generate 8090% of its operating profit, due to the introduction of Minivan/SUV. • Favorable change in the product mix would lead to the improved operating profit margin. • Global consolidation trend by the major competitors may disadvantage Honda’s global strategy. US recession and volatile currency may hit Honda’s sales. Rating System: BUY: A strong purchase recommendation with above average long-term growth potential. MARKET OUTPERFORM: A purchase recommendation that is expected to marginally outperform the return of the market. MARKET PERFORMER: A recommendation to maintain current positions with returns to match that of the market. SELL: A recommendation to sell the security (or short the security) as it is expected to decrease in price in the medium term.
Business Summary Honda Motor Co., Ltd., established in 1948, is Japan’s #3 automaker after Toyota and Nissan and the largest manufacturer of motorcycles in the world. It is the world’s largest producer of internal combustion engines, including its motorcycle and power products businesses. The Company is recognized internationally for its expertise and leadership in developing and manufacturing a wide variety of products, ranging from small general-purpose engines to specialty sports cars that incorporate Honda's highly efficient internal combustion engine technology. It has a global network that comprises 434 subsidiaries and affiliates, including 118 production facilities in 33 countries. Approximately 11.5 million Honda engines were sold worldwide during the fiscal year ended March 31, 2000. The company's car models include the Accord, Legend, and Civic, as well as the luxury Acura and the Insight -- a gasoline-electric hybrid. Japan and North America each account for more than 40% of sales. Overall performance in FY Mar. 2001 During fiscal Mar. 2001, Honda achieved record-high automobile sales in all regions other than Europe, with unit sales worldwide increasing 4.3% compared with the previous fiscal year, to 2.58 million units. This increase in unit sales helped offset the negative impact of the yen appreciation on net sales, which amounted to ¥5,231.3 billion ($42,222 million), an increase of 5.4% from the previous fiscal year. Operating income amounted to ¥320.0 billion ($2,583 million), decreasing 8.1%, while the operating margin was 6.1%. Production Process Improvement through the New Manufacturing System In September 2000, Honda introduced its New Manufacturing System, which improves product quality, reduces tooling...