DBRS Confirms Toyota Motor Corporation and Related Entities at AA (low), Stable Trend

DBRS Limited (DBRS) has today confirmed the long- and short-term ratings of Toyota Motor Corporation (Toyota or the Company) and its subsidiaries at AA (low) and R-1 (middle), respectively, with a Stable trend. The ratings incorporate the Company’s very strong business profile as a leading global automobile manufacturer with highly efficient operations. Toyota’s financial profile is also inordinately strong, with abundant liquidity (significantly consisting of substantial holdings of long-term, highly rated government bonds).

DBRS notes that the Company’s improved financial performance has persisted in fiscal 2015 (F2015, ending March 31, 2015) through the first half of F2016, notwithstanding a slight contraction in sales volumes (mostly attributable to declines in Japan and Asia), as Toyota continues to benefit from the weakening of the Japanese yen (albeit to a lesser degree vis-à-vis F2014) and ongoing cost reduction efforts. Operating margins of the automotive operations are very solid at approximately 10% in the twelve-month period ending September 30, 2015. Additionally, Toyota’s earnings base is becoming increasingly diversified by geography, with all regional segments being profitable.

Moreover, following some brief issues regarding product quality earlier this decade, the Company has regained its position as the effective industry leader in quality, with both the Toyota and Lexus brands achieving leading results in various related industry surveys (Toyota also remains the world’s most valuable automotive brand). The Company is seeking to further bolster Lexus’s position as a global luxury brand through several high-profile product introductions, including the recently revised RCF, as well as the forthcoming LC.

While global industry growth is likely to remain moderate over the near to medium term, DBRS expects the Company’s earnings to continue to benefit from the above-cited factors and remain strong. Toyota’s ongoing cost reduction efforts will be highlighted by the progressive roll-out of the Toyota New Global Architecture (TNGA) platform, with the recently launched (fourth generation) Prius being the first model introduced under this architecture. Additional planned TNGA-based models include the new C-HR crossover utility vehicle (CUV), with TNGA-based vehicles to represent an increasing proportion of Toyota’s aggregate production going forward. With Japan still representing more than 45 percent of its global production (significantly higher than its major national peers), Toyota’s earnings have benefited the most from the yen’s depreciation. Going forward, the Company will persist with its flexible production system, with Japan representing an additional source of supply for various models to accommodate for changes in demand, as well as foreign exchange fluctuations.

The Stable trend incorporates DBRS’s expectation that Toyota will maintain its very strong financial and business profiles. While DBRS recognizes that the Company’s dividends and share repurchases have increased considerably, these outlays remain well-absorbed by Toyota’s strong cash flow generation and substantial liquidity.

Notes:
All figures are in Japanese yen unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Companies in the Automotive Manufacturing Industry (October 2015), which can be found on our website under Methodologies.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.