Yamaha Motor Co Ltd

TSE:7272

Earnings Call Analysis

Yamaha Motor Q3 Record High Sales and Profit

In Q3 2023, Yamaha Motor reported record high sales and profits, with strong motorcycle and marine outboard motor shipments, but faced difficulties in robotics due to China's slowdown. Improvement in semiconductor supplies has led to increased motorcycle shipments in emerging markets, benefiting from a weaker yen. Key operational gains were offset by increased expenses, though some costs like raw materials declined more than expected. New ventures include medical healthcare through Tuning Fork Bio Inc, advances in environmental friendly materials, and hydrogen engine research. A 3-for-1 stock split aims to attract more investors. While Land Mobility showed growth, Financial Services saw lower profits, and SPV and Robotics decreased in both sales and profits.

Riding the Wave of Record High Sales and Profit

The third quarter marked an achievement with record high sales and profit, indicating robust financial health and prosperity. Core businesses, particularly in motorcycles and marine outboard motors above 200-horsepower, showed shipment increases, suggesting strong product demand. Emerging markets remained stable, and cost reduction efforts, alongside reduced raw material costs for steel and aluminum, contributed significantly to profit growth.

Dividends and Stock Splits: A Shareholder-Friendly Approach

In a move to enhance shareholder value, the company announced a 3-for-1 stock split, effective December 31, 2023, aimed at lowering the investment threshold and expanding its investor base. Despite this change, the annual dividend forecast for fiscal 2023 is set to remain consistent on a pre-split basis, maintaining a commitment to returning value to shareholders.

Operational Highs and Lows Across Segments

The earnings report revealed a mixed performance across different business units. The Land Mobility segment, encompassing the Motorcycle, RV, and Marine businesses, reported higher sales and profits, emphasizing the strength in these traditional areas. Conversely, the decline in shipped units in the ATV/ROV and for mid- and small-sized outboard motors, alongside market inventory adjustments, indicated areas of challenge. The company is actively promoting to reduce inventory and regain momentum.

Profit Growth Amid Weakening Yen and Cost Reductions

A significant increase in profit was driven by an expanded price pass-through effect and a weakening yen, which provided a favorable foreign exchange impact. Operational income saw a 20% increase from the previous year, reaching JPY 208.2 billion, and net income attributable to shareholders of the parent company grew by 12%, to JPY 149.3 billion. These figures underscored robust financial execution and effective cost management strategies.

New Horizons: Medical Ventures and Environmental Innovations

The company is branching out into new ventures, such as establishing Tuning Fork Bio Inc. to pursue opportunities in the medical and healthcare sector through antibody analysis. Environmental sustainability also featured prominently, with the introduction of plant-derived materials and advancements in hydrogen engine research, pointing to a commitment to future-proofing the business against environmental challenges.

Financial Services and Robotics: A Mixed Outlook

While unit sales increased, contributing to higher sales in the Financial Services segment, rising funding costs and bad debt expenses have led to declining profits. Robotics, on the other hand, faced headwinds due to a sluggish Chinese economy resulting in reduced sales and profits. Inventory optimization and a cautious approach to recovery in the next fiscal year have been planned to address these issues.

Earnings Call Transcript 2023-Q3

[Unknown Executive]

Ladies and gentlemen, thank you very much for attending Yamaha Motor's earnings presentation for the third quarter of fiscal 2023. I'll be serving as the MC. I am [indiscernible] from Corporate Communications.

So first, I would like to introduce today's speaker. Our speaker is our Director, Motofumi Shitara. He will first make a presentation. And after that, we will have a Q&A Zoom session for the news media and then for the analysts. The presentation material is available on Yamaha Motor's web page.

So we now would like to start the presentation.

[Shitara Motofumi, executive]

I am Shitara from Yamaha Motor. And thank you very much for attending this business results presentation for Yamaha Motor despite your very busy schedules. And I'd also like to take this opportunity to thank you for your understanding and support for our daily businesses.

Now I would like to give you an overview of our business results. First, the third quarter key points. Please refer to Page 4. In the third quarter, we have achieved a record high sales and profit.

Looking at our core businesses, we have seen an increase in shipment for our motor cycles as well as outboard motor of 200-horsepower and above in the marine business. However, in the robotics business, because of the slowdown in the Chinese economy, the impact was large, and we are still facing difficulties.

Now the outlook for 2024, business environment. Emerging markets, domestic demand, we expect to remain steady. The semiconductor supply situation has normalized, providing a tailwind for motorcycle premium model production. However, depending on the region, we may need to keep watch over the economic trends.

Concerning cost, ocean freight and logistic costs went down and the rise in raw material prices are expected to settle down. As for the market, emerging market motorcycle demand is expected to continue to recover, although the situation may differ from country to country, large outboard motor above 200-horsepower will continue to see strong demand.

In the SPV business, e-bike markets may see a prolonged inventory adjustment. Robotics market, the slowdown seemed to have hit the bottom, and we expect gradual recovery. We will continue to control our expenses and invest in technology so that we can accelerate growth for the future. Also, today, we had a Board of Directors meeting where a resolution on stock split was passed.

Next, the units shipped and inventory. Please refer to Page 5. The left-hand side shows you the major product shipment amount, and a comparison with fiscal 2022. Motorcycle. In Indonesia, India and Brazil, especially, we have seen strong demand.

Outboard motor in the mid- and small-sized products, we see a decline. But for the larger ones, above 200-horsepower, we still see strong demand. ATV/ROV. The slowdown in demand as well as price offensive by other companies have caused a reduction in our shipped units. SPV also the market inventory increased and shipment decreased. Mounters for Asia, we have seen a decrease in shipment.

On the right-hand side, we saw -- show you a comparison of the market inventory and a comparison with appropriate level. The inventory is above the appropriate level in Vietnam, Philippines, Thailand and Europe and for the mid- to small outboard motor and other some models, we are seeing adjustment of production, and we are strengthening our promotion activities to reduce inventory.

Now the 2023 third quarter business results. Please refer to Page 6. On the left, you have the fiscal year 2022 third quarter actual than the fiscal '23 third quarter actual and the difference between the year before.

For the fourth quarter -- excuse me. We see, as a result, the sales 109% from the previous year, JPY 1,835.2 billion, operating income, 120% in the previous year, JPY 208.2 billion, operating income ratio plus 0.9, at 11.3%, ordinary income, 108%, JPY 205.9 billion, and net income attributable to shareholders of parent 112%, JPY 149.3 billion. EPS was 114% against the previous year at JPY 444.84.

The semiconductor supply situation has improved and we see an increase in the motorcycle premium model shipment in emerging countries and the price pass-through effect has expanded. And with the weaker yen, we have seen significant increase in profit. The exchange rate that has been used is JPY 138 against the dollar and JPY 150 against the euro. And the emerging market currencies versus the U.S. dollar is shown on the screen.

Next, fiscal '23 third quarter factors that affect our operating income. Please refer to Page 7. As you can see, the sales increase was a positive JPY 38.7 billion contribution. The breakdown is price increase, positive JPY 60.6 billion, unrealized profit effect, positive JPY 7 billion; Financial Services, negative JPY 2.8 billion; a scale increase, negative JPY 600 million; and mix and others, negative JPY 25.6 billion.

Cost reduction, negative JPY 6.8 billion, and the breakdown is cost reduction plus JPY 15.1 billion and cost increase, negative JPY 21.9 billion. The growth strategy expense increased and therefore, a negative JPY 4.9 billion. SG&A increased negative JPY 27.8 billion and the ForEx impact was a positive JPY 34.9 billion.

The scale and sales increase slightly went down. However, the price increase effect expanded. And with the cost reduction activities progressing, we have seen a profit increase and the raw material costs, especially for steel and aluminum has gone down more than expected.

Next, our progress in our medium and long-term measures. Please turn to Page 8. First, in the new businesses area of medical and health care, we established Tuning Fork Bio Inc., utilizing antibodies to develop a medical and health care business by analyzing antibodies in the blood and visualizing a person's state of health. We aim to suppress the onset of disease, select the most appropriate medicine for each individual and conduct drug discovery research.

We also made progress in addressing environmental and resource issues. On the left, we use a plant-derived material, cellulose nanofiber reinforced resin to produce watercraft and sports boats that are now available in North America. Using this material for mass production of transportation equipment parts is a global first. Compared to existing resin materials, this material has superior recyclability, which can lead to reduction in plastic use and greenhouse gas emissions.

On the right shows you advances in our research on hydrogen engines, an ROV powered by a 100% hydrogen engine that emits zero CO2 was unveiled at the Japan Mobility show just the other day. Hydrogen engines are still in the research stage. But this technology has the potential to combine both decarbonization and internal combustion engines, sound and vibration while driving our power to what make internal combustion engines so attractive. So we will continue to explore the possibilities into the future.

Next, notice of a stock split. Please turn to Page 9. At a meeting of the Board of Directors today, the Board passed a resolution regarding a stock split. The company will carry out a 3-for-1 stock split of its common stock, with a record date of December 31, 2023.

By reducing the unit price of investment in our shares, we aim to create an investment-friendly environment and expand our investor base. The annual dividend forecast for fiscal 2023 remains unchanged based on the pre-share split basis. And regarding our shareholder special benefit plan, the content of the current plan will be maintained. And through a review of the standards for held shares, we will effectively enhance the program.

Next, details by business segment. First, net sales and operating income by business for the first half. Please turn to Page 11. The Land Mobility segment, Motorcycle, RV and Marine businesses reported higher sales and higher profits. Financial Services and Other businesses posted higher sales but lower profits. And in the Land Mobility segment, the SPV and Robotics businesses reported lower sales and profits.

Next, by -- the details by business. Please turn to Page 12. First, our core businesses. On the left is the Motorcycle business. The graph shows sales by region. There was continued strong demand in Europe and the U.S. and economic recovery in emerging countries, semiconductor procurement improved, leading to sales increasing in almost all regions, resulting in higher revenues.

In particular, in Indonesia, Brazil and India, there was significant increase. In terms of profit, due to the expanded effective price pass-through, the profit margin improved. Going forward, through improved semiconductor procurement, we will begin shipping premium models in earnest.

Next, on the right is our marine business. The graph shows sales by product. In outboard motors, demand for small- and medium-sized models declined. Demand for larger models at 150 to 200-horsepower has stabilized, but models with 200-horsepower more remained steady. We will continue to increase production capacity of large models as planned.

Demand for watercraft remained strong. At our company, at our U.S. plant, the production efficiency has improved, enabling us to increase supply. As a result, sales increased, and our operating margin also improved. We are pleased to introduce our new products.

Please turn to Page 13. This is the recently announced XSR900GP. It's scheduled for release in Europe in 2024. It went on show at the Japan Mobility Show and EICMA 2023 International Motorcycle Exhibition. The embodiment of Yamaha racing history is the design concept.

The design pays homage to the '80s Grand Prix machine, the YZR500. You can feel what Yamaha has cultivated at the world's most prestigious road races, the history and the spirit. In Japan, the XSR900GP is scheduled to be launched after the summer of 2024. That's something to look forward to.

Next, our RV and Financial Services businesses. Please turn to Page 14. On the left is our RV business. Although demand slowed and shipments declined at our U.S. plant, production efficiency improved. In part, due to the positive effect of the weaker yen, both sales and income increased. The outdoor leisure boom led to more new buyers, and we expect their replacement purchases will support demand.

Next, on the right is our Financial Services business. Thanks to the increase in unit sales across all regions, sales finance receivables increased, resulting in higher sales. We will continue to implement price pass-throughs associated with higher interest rates but funding costs have increased.

In addition, due to the expansion of receivables, bad debt expense increased and the loss on valuation of interest rate swaps was incurred. As a result, since the second quarter, profit margins have gradually improved, but profits declined year-on-year. For the next fiscal year, a similar trend is expected, but we will steadily promote price pass-through to new credits.

Finally, our growth businesses, SPV and Robotics, please turn to Page 15. On the left is our SPV business. In the market, inventory adjustment continues, and we are also adjusting our production. As a result, unit sales declined, resulting in lower sales and lower profits. Inventory optimization is planned for next fiscal year and beyond.

Next, on the right is the Robotics business. In developed countries, demand for automotive and industrial equipment remains strong. But due to the impact of the sluggish Chinese economy, both sales and profits declined. Although there are signs that the market has recently bottomed out, recovery is expected to proceed slowly in the next fiscal year.

This concludes the explanation for the third quarter of the fiscal year ending in December 31, 2023. Thank you for your kind attention.

[Unknown Executive]

So with this, we would like to end the presentation for the third quarter of fiscal year 2023.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]