Tuesday, 5 August 2014

Toyota Caetano: 2nd quarter preview and some more data

I have not posted for some time about Toyota Caetano. I have been adding to my position so I did not feel posting about it would be a good idea. 

So what more do we now know?
Q2 Toyota+Lexus auto sales were 2123 units, a 40 % increase over Q1 (1515 units).
Q2 Toyota auto production were 513 units, a 107% increase over Q1 (248 units)

Why do I compare with Q1 instead of comparing with the previous year? Because we have the Q1 results to compare and we know that the cost structure was similar. So what happened in Q1?

Industrial unit:
Q1 sales were 3916k and operational loss was 802k. So we know this is the lagging unit on the company. Industrial sales are composed of auto production + auto transformations. Auto production numbers are readily accessible. Auto transformations we can only know by reading the quarterly reports. It seems plausible however that auto transformations should be closely related with national auto sales. In fact in most years auto units transformed have been around 40% of domestic auto units sold (I can be wrong here), but in some years they have been higher. If this is true, then we can deduce that industrial sales will increase at a pace somewhere between the 40% auto sales and the 107% auto production increases. Unfortunately gross margin and fixed costs are not available on a segmental basis, making  accurate predictions impossible. We know however that due to the mostly fixed nature of  depreciation, wages and some other costs, the sales increase should be much lower than the earnings increase. Earnings might continue negative, but since 350k is 0.01€/share, if operational losses were reduced to 100K that would be 0.02€/share increase in operational earnings in the quarter (0.08€ annualized).
Domestic marked auto sales- Commerce unit:
Q1 sales were 69.396k and operational profit was 795k. So a 40% increase in sales (assuming a fixed sales mix) would mean about 97M in sales in Q2. A disproportional increase in operational profits should be expected, and a double might be reasonable. I will assume a 700k increase in operational profit (0.02€/share).

Auto services and renting, Industrial equipment and international commerce (Cape Verde)
Auto services sales, in the long term, should benefit from increased auto sales. However in the short term I do not expect much change. I have no new data to add here, neither on the auto renting unit. However, it is interesting to look at Q1 data:
-auto services operational loss was 80k on 3786k sales
-auto renting unit operational loss was 24k on 1587k sales
- industrial equipment operational profit was 940k on 4183k sales
As long as the economic environment keeps increasing the industrial equipment sales and profit should also continue increasing. The increase in profit should exceed the increase in sales due to the unused capacity (just like in the remaining divisions of Toyota Caetano)

Segmental data are subject to eliminations (since there is much integration between units global profit change should be much lower than the sum of the individual parts). However, after a 1411k Q1 operational profit (721k net income to shareholders), the results should see a reasonable increase in Q2. In fact, I would expect (on a very light and maybe optimistic analysis) a near double of both operational profit and net income, which would mean 0.06€/share net income in the first semester (0.12€/share annualized, slightly above my projection some months ago).

July Toyota+Lexus auto sales were 944 units, a 56% increase YoY  (606 units), equivalent to 62% of Q1 sales in a single month. This is especially important because auto sales were already in recovery mode in July 2013 (the company's operational profit in 3Q 2013 was about 130k, translating to a 30k net income). However August and September are typically weak months. The August effect is probably also true for the industrial unit, although I have no data on that. However, with this information maybe we can expect a 3Q2014 similar to 1Q2014 in what comes to results.

In conclusion, Toyota Caetano sales seem to be recovering faster than I expected. If the increase continues, maybe de 0.10€/share net income I wrote about some months ago will be too conservative. Since the shares are trading at 1.20€, a 0.12€/share net income (which should translate to a 0.12€/share dividend) would represent a 10% (dividend) yield. Not bad for a still subnormal year.

2Q2014 results should be out by the end of the month and by then I will be able to check if I am modeling the results properly.

Disclaimer: I own shares off Toyota Caetano. I have added to my position at current price and at higher prices, but my average price is still below current price. This is no investment recommendation. I might (and will be) wrong in some instances. Do your own diligence. Always read the introduction post.

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