Honda Motor Co., Ltd.

HMC Details

Honda Motor Co., Ltd. (NYSE: HMC) is a Japanese conglomerate specializing in motorbikes, automobiles, financial services, and life creation business. Its Motorcycle division sells all-terrain vehicles (ATVs), side-by-side (SxS), and motorbikes. Its Automobile segment provides automobile parts. The Financial Services section includes sales finance and leasing. Life creation and other enterprises offer power products and other associated components. HMC has 1.81 billion American Depository Shares (ADS) listed and outstanding (each ADS representing one ordinary shares).

Latest News:

• Strategic Investments & Collaborations: HMC stated on January 19, 2022, that it has invested in California-based Helm.ai, a provider of AI-based image identification technologies, in December 2021 to boost its software technology development in artificial intelligence (AI) and computer vision technologies. In addition, on January 19, 2022, HMC also announced a joint development agreement in the area of Lithium-Metal secondary batteries with SES Holdings Pte. Ltd. (SES), a Boston-based EV battery research and development business.
• Erection of EV Production Plant: Honda Motor (China) Investment Co., Ltd., a wholly-owned subsidiary of HMC in China, announced on January 6, 2022, that Dongfeng Honda Automobile Co., Ltd., a Honda automobile production and sales joint venture in China, will construct a new dedicated electric vehicle (EV) production plant to establish a sound production system and capability in preparation for the expansion of its EV lineup in the coming years.

H1FY22 Results:

• Growth in Topline: The company reported sales revenue increased by 21.00% to JPY 6,988.23 billion in H1FY22 (ended September 30, 2021) from JPY 5,775.14 billion in H1FY21.
• Increase in Net Income: The company's net income increases to JPY 408.60 billion during H1FY22 from JPY 172.57 billion during H1FY21.
• Cash and Debt Position: As of September 30, 2021, the company had cash and cash equivalents of JPY 2,810.53 billion with a total debt of JPY 7,737.95 billion.

Key Risks:

• Purchasing and Procurement Risk: HMC strives to keep purchasing items at reasonable costs and on time; therefore, it purchases raw materials and parts from various sources and relies on a few suppliers for certain raw materials. Its ability to continue getting these supplies in a timely and cost-effective manner is contingent on multiple factors, some of which are beyond its control. These criteria include the ability of its suppliers to deliver a consistent supply of raw materials and the ability to compete for supplies with other users.

Outlook:

• FY22 Estimates: As of November 05, 2021, HMC stated that it intends to achieve a JPY 660 billion operating profit in FY22, the same as in FY21, through continued efforts to boost profitability, such as reducing selling, general, and administrative (SG&A) expenses and lowering costs.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

HMC' share price has remained stable throughout the year and has risen only 9.77% in the past twelve months. It is currently leaning towards the mid-band of its 52-week range of USD 26.40 to USD 33.42. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is at 47.07. We have valued the stock using the Price/Earnings multiple-based relative valuation methodology and arrived at a target price of USD 33.33.

Considering the company's proven track record, market dominance in the automobile industry, encouraging outlook, current valuation, and associated risks, we recommend a "Hold" rating on the stock at the current price of USD 29.10, down 1.52% as of February 01, 2022, at 12:26 PM ET.

Three-Year Technical Price Chart (as of February 1, 2022; at 12:26 PM ET). Analysis by Kalkine Group 

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.