Toyota Motor Powers to Record High with Cyclical Shares Back in Demand

By Hideyuki Sano and Fumiya Mizuno

Toyota’s shares rose as much as 2.6% to 8,869 yen, surpassing their 2015 peak, and closed up 2.0%.

“With earnings out of way, the market trend has clearly shifted in favour of value stocks from growth stocks which had been bought only based on expectations (of future growth),” said Hiroyasu Mori, strategist at Okachi Securities.

“There’s no doubt that Toyota, once called an eternally cheap stock, is a leader in this.” he said.

Toyota, the top Japanese company by market capitalisation and the world’s biggest automaker, has weathered a global semi-conductor chip shortage better than many of its rivals and is forecasting a return to pre-pandemic profit levels this year.

“As supply chain disruptions due to the chip shortage hamper the automaker industry, Toyota has been regarded as the automaker investors can buy,” Nobuhiko Kuramochi, senior strategist at Mizuho Securities, said.

Toyota’s gains also reflect investors’ renewed interest in traditional automakers, which have valuations below those of electric vehicle makers such as Elon Musk’s Tesla.

Shares of Volkswagen have gained nearly 40% this year, while Stellantis has risen 28%.

In contrast, Tesla shares have dropped 18% and Nikola’s 15% since the start of 2021.

Although Toyota has been regarded as a rare winner in an industry squeezed by competition from electric vehicle manufacturers, shares of rival Honda Motor shares also rose 3.3%, outperforming a broader market that was up about 1.5%. [.T]

Steelmakers, financials and retailers also gained sharply.

Nippon Steel rose 4.5% while Dai-ichi Life Insurance jumped 5.8% and Isetan Mitsukoshi gained 3.6%. All three trade far below their book value.

“Value stocks, which had underperformed until recently, look more attractive now,” said Taku Ito, chief portfolio manager at Nissay Asset Management.

“Last year, I didn’t change my allocation that much. But recently I am quite busy as the shares that were doing well last year are no longer doing well.”

($1 = 109.18 yen)

(Reporting by Hideyuki Sano; Editing by Himani Sarkar, Kirsten Donovan)

Toyota Expects Profit Rebound, Shrugs Off Pandemic Slump and Chip Shortage

By Eimi Yamamitsu

The world’s biggest automaker by vehicle sales expects renewed demand in the United States, its biggest market, to drive that recovery and forecast overall sales to grow 6.4% to 10.55 million vehicles for the year.

“Due to the spread of COVID-19 in each region, sales volume declined significantly in the 1st half of the fiscal year. But in the 2nd half of the fiscal year, sales volume increased in many regions compared to the previous fiscal year,” CFO Kenta Kon told a press briefing.

Toyota shares reversed course to rise 2.1% after the results on Wednesday, contrasting with a 10% tumble for smaller rival Nissan whose guidance disappointed investors.

Toyota surprised rivals and investors last quarter when it said its output would not be disrupted significantly by ongoing chip shortages even as Volkswagen, General Motors, Ford, Honda and Stellantis, among others, have been forced to slow or suspend some production.

The global auto industry has been grappling with that chip shortage since late last year, which was worsened in recent months by a fire at a chip plant in Japan and blackouts in Texas where a number of chipmakers have factories.

Analysts have said Toyota has so far been largely unscathed likely due to its chip stockpiling policy.

The maker of the RAV4 SUV crossover and Prius hybrid almost doubled its fourth-quarter operating profit to 689.8 billion yen, beating an estimate of 641.5 billion yen from 10 analysts compiled by Refinitiv. The profit was 369.9 billion yen in the same period a year earlier.

Its forecast of 2.50 trillion yen for the year that began on April 1, however, was lower than the 2.65 trillion yen average profit forecast from 24 analysts compiled by Refinitiv.

Nissan said on Tuesday it expects to break even this business year, defying expectations for a return to profitability, as the global chip shortage and commodity price hike curb the car maker’s recovery from a record annual operating loss.

Japan’s second-biggest automaker Honda, which is due to report annual results on Friday, said in February it expects a 520 billion yen profit for the year that ended in March.

($1 = 108.8500 yen)

(Reporting by Eimi Yamamitsu; Editing by Tom Hogue and Muralikumar Anantharaman)

Earnings to Watch Next Week: Marriott, Electronic Arts, Alibaba and Walt Disney in Focus

Earnings Calendar For The Week Of May 10

Monday (May 10)

IN THE SPOTLIGHT: MARRIOTT

Marriott International, an American multinational diversified hospitality company, is expected to report its first-quarter earnings of $0.03 per share, which represents a year-over-year decline of over 88% from $0.26 per share seen in the same quarter a year ago.

The U.S. hotel operator’s revenue would slump about 50% to $2.36 billion. However, in the last quarter, the company has delivered an earnings surprise of over 20%.

“Largest hotel brand company globally creates economies of scale, but the spread of COVID-19 will pressure unit growth. With the stock trading near its historical average multiple, we see too wide a risk-reward to justify recommending, with upside/downside driven by how severe and quick business trends return to normal post-COVID-19,” noted Thomas Allen, equity analyst at Morgan Stanley.

Tuesday (May 11)

IN THE SPOTLIGHT: ELECTRONIC ARTS

Electronic Arts, one of the world’s largest video game publishers, is expected to report its fiscal fourth-quarter earnings of $1.04 per share, which represents a year-over-year decline of over 3% from $1.08 per share seen in the same quarter a year ago.

The world’s largest video game publishers would post revenue growth of about 15% to around $1.39 billion. However, in the last four quarters, the company has delivered an earnings surprise of over 500%.

“For the fourth quarter of fiscal 2021, EA expects GAAP revenues of $1.317 billion, cost of revenues to be $302 million, and operating expenses of $837 million. EA anticipates a loss per share of 7 cents for the fourth quarter. Net bookings are expected to be $1.375 billion, which indicates an increase of $75 million over the prior guidance. For fiscal 2021, EA expects revenues of $5.6 billion, cost of revenues to be $1.477 billion, and earnings per share of $2.54,” noted analysts at ZACKS Research.

Wednesday (May 12)

Ticker Company EPS Forecast
WEN Wendy’s $0.15
WIX WIX -$0.68
DT Dynatrace Holdings $0.14
WWW Wolverine World Wide $0.40
LITE Lumentum Holdings Inc $1.42
DOX Amdocs $1.13
JACK Jack In The Box $1.29
GOCO Gocompare.Com $0.00
SONO Sonos Inc -$0.22
PAAS Pan American Silver USA $0.30
MAURY Marui ADR $0.15
TM Toyota Motor $3.67
AEG Aegon $0.17
BRFS BRF $0.02
EBR Centrais Eletricas Brasileiras $0.27
BAYRY Bayer AG PK $0.73
TCEHY Tencent $0.53
DM Dominion Midstream Partners -$0.13
FLO Flowers Foods $0.37

Thursday (May 13)

IN THE SPOTLIGHT: ALIBABA, WALT DISNEY

ALIBABA: China’s Alibaba Group Holding, the largest online and mobile e-commerce company in the world, is expected to report its fiscal fourth-quarter earnings of $1.82 per share, up over 40% from the same quarter a year ago. China’s biggest online commerce company’s revenue to surge more than 70% to $27.7 billion.

“Heightened investments in Taobao Deal and Grocery for user acquisition in less-affluent regions in China, should support long-term growth in core e-commerce business. Merchants’ marketing budgets will continue to shift online given rising reliance on e-commerce and better conversion. Alibaba’s ad resources remain under-monetized,” noted Gary Yu, equity analyst at Morgan Stanley.

“Digitalization trend in China will also sustain AliCloud’s growth potential. Gradual margin expansion will be a long-term profit driver. We see limited near-term catalysts but F22e P/E valuation remains attractive. We also see further downside support from additional disclosure to separate losses from new investments from profitable core e-commerce businesses.”

WALT DISNEY: The world’s leading producers and providers of entertainment and information is expected to report its fiscal second-quarter earnings of $0.27 per share, which represents a year-over-year decline of over 50%. The Chicago, Illinois-based family entertainment company’s revenue would slump over 10% to $ 16.1 billion.

Disney is building content assets that enable it to take advantage of the significant direct-to-consumer streaming opportunity ahead. Disney’s underlying IP remains best-in-class, supporting long-term content monetization opportunities,” noted Benjamin Swinburne, equity analyst at Morgan Stanley.

“During this period of FCF pressure from Parks closures, ESPN’s FCF generation is key to driving down leverage. Historical cycles suggest a potential return to above prior peak US Parks revenues in FY23.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MAY 13

Ticker Company EPS Forecast
CELH Celsius $0.00
HAE Haemonetics $0.69
BABA Alibaba $11.80
BAM Brookfield Asset Management USA $0.87
TAC TransAlta USA $0.06
UTZ Utz Brands $0.15
VERX Vertex Inc. Cl A $0.05
FTCH Farfetch -$0.28
DIS Walt Disney $0.27
AMAT Applied Materials $1.50
DDS Dillards $1.20
VNET 21Vianet -$0.02
TEF Telefonica $0.16
PBR Petroleo Brasileiro Petrobras $0.12
NICE Nice Systems $1.50
TYOYY Taiyo Yuden ADR $2.09
IX Orix $1.97
SGAMY Sega Sammy ADR -$0.02
SOMLY Secom ADR $0.27
OJIPY Oji ADR $1.57
SBS Companhia De Saneamento Basico $0.15

Friday (May 14)

Ticker Company EPS Forecast
MFG Mizuho Financial $0.06
CIG Companhia Energetica Minas Gerais $0.08
HMC Honda Motor $0.41
SMFG Sumitomo Mitsui Financial $0.12
RDY Drreddys Laboratories $0.52

 

Bitcoin Mining Adds to Existing Shortage in Semiconductor Market, Chip Prices Surge

Bitcoin is now a trillion-dollar market thanks to an impressive rally that propelled the oldest cryptocurrency to a fresh all-time high at over $61,000. While market participants enjoy the bullish run, some industries are suffering because of the inflated price of chips.

Everyone is talking about how Bitcoin mining affects the environment due to the huge demand for electricity and the giant carbon footprint. What few people know is that crypto mining impacts the costs of chips, which have been recently booming in price.

Chip Shortages Affecting Entire Industries

Chips are indispensable in so many devices and industries – think about laptops, smartphones, TVs, or cars. The semiconductor industry has already been struggling with supply chain disruptions caused by the COVID-19 pandemic, the winter storm in Texas, and fires at factory sites. But Bitcoin mining is putting even more pressure on the chip market, creating an additional shortage and boosting the price of chips.

The profitability of mining depends on the cryptocurrency’s price, which has rallied for the last few months, surging well above the 2017 peak. The huge competition among miners is prompting an increasing demand for advanced chips. This results in a price boom for chips and thus affects the other industries relying on semiconductors.

CW Chung, head of research at Nomura in Seoul, told Financial Times:

“Added demand from cryptocurrency miners is coming when the chip industry is dealing with simultaneous crises — from supply constraints to a structural shortage of high-end chips. The squeeze should last through the end of the year.”

The problem is so severe that Toyota and Volkswagen – the world’s two biggest carmakers by the number of vehicles manufactured – were forced to cut production due to the shortage of chips. Elsewhere, smartphone makers have no choice but to delay the launches of new devices.

Chung explained that crypto demand might have a great impact on the chip market. For example, during the last Bitcoin rally, demand from miners represented a tenth of the entire sales of TSMC – the third-largest chipmaker in the world.

Nvidia Makes Sure New Chip Is Not Miner-Friendly

The situation is affecting the gaming industry as well, forcing Nvidia to program one of its new chips – GeForce RTX 3060 – to reduce mining efficiency by 50% when it spots mining activity.

Elsewhere, chipmaker Advanced Micro Devices (AMD) told PC Gamer that it had no plans to restrict its graphic cards from being implemented for crypto mining. The truth is that AMD might have no choice at all, as all its drivers are open source.

US/Sino Trade Talks Resume, EU Markets Remain Cautious, Futures Indicate A Flat Open For US Indices

Asian Markets Are Optimistic As Trade Talks Resume

Asian markets were broadly higher on Monday as trade talks resume between the world’s two largest economies. The talks are vice-ministerial level, began today and are being held in Beijing. China’s spokesperson for the Foreign Ministry says both sides have expressed a desire to make a deal and that China is ready to resolve these issues with the US on an equal footing.

China’s equity markets were the least bullish in Monday trading, rising about 0.75% in Shanghai and Hong Kong. In Hong Kong, China Mobile was among the top gainers advancing more than 1.10% on an upgrade from Nomura. Nomura says China Mobile is well positioned to dominate the 5G landscape in the region.

Other indices were more buoyant. The Japanese Nikkei rose nearly 2.45% on the news, led by the auto sector, with Toyota advancing 3.15%. In Korea, the Kospi gained 1.34% with shares of Samsung and Dongbu Steel leading the way. Samsung was up on news it had inked a deal with former rival Apple while Dongbu Steel jumped 30% after it announced a plan to increase investment in its shares.

Traders In EU Remain Cautious Despite Trade Optimism

Traders in the EU remain cautious on global growth concerns, Brexit uncertainty, and the US government shutdown. Slowing global growth is a major cause of the recent equities market correction and remains in the spotlight as data continues to come in weak. In today’s news, German factory orders fell more than expected. Analysts had bee looking for a decline near -0.2%, the actual was -1.0%.

As concerning as the manufacturing data is, it is mitigated by stronger than expected retail sales. Retail sales in Germany grew a full percentage point faster than expected, 1.4%, while YOY sales bucked expectations for a decline with a gain of 1.1%. Retail sales in the broader EU economy were also strong at 0.6% MOM but only as expected. YOY retail sales in the EU came in below consensus. EU equities indices were down across the board at midday, led by the French CAC with -0.65%.

US Futures Flat, Trade, FOMC, And Earnings Are In Focus

US futures indicated a flat open on Monday as traders wait for word on trade. With the US and China discussing the matter right now we can be assured of some headlines in the overnight hours going into Tuesday’s session. Traders are expecting some positive developments although nothing substantive is likely to develop at this time.

On the FOMC front, Fed Chief Jerome Powell did a lot to soothe frayed market nerves last week when he said the committee was patient and ready to alter its course if data supported that idea. In terms of data, Friday’s NFP report showed a massive gain in US employment and hourly earnings, one indication the Fed’s plan to continue hiking rates is still sound. This week’s data includes the FOMC minutes from the last meeting as well as a read on consumer level inflation, due out Friday.