Morgan Stanley hikes Japan automaker targets, Honda the top pick

Investing.com-- Morgan Stanley analysts hiked their price targets on Toyota and Honda , while citing the latter as their top pick among Japanese automakers on improved profitability prospects and sustained shareholder returns.

MS hiked Honda Motor Co (NYSE:HMC) Ltd's (TYO:7267) PT to 2,250 yen from 2,200 yen, and maintained its Overweight rating on the stock.

The brokerage said that the automaker’s profitability appeared brighter with a wider lineup of hybrid electric vehicles (HEV) and improving supply of the sector. 

It also cited strong margins in Honda’s motorcycles division thanks to reduced costs, barring an increase in research and development spending. 

While Honda’s overall costs are set to increase, especially in the face of increased in-house battery production and software, the outlook for the stock was buoyed by a 300 billion yen ($1.91) share buyback.

“Shareholder returns still one key to getting stock price above book value. Honda still our Top Pick for industry,” MS analysts wrote in a note. 

MS raises Toyota PT, maintains in-line view on Japan automakers 

MS also hiked its PT on Toyota Motor Corp (TYO:7203) (NYSE:TM), to 3,500 yen from 3,400 yen, while maintaining an Equal Weight position on Japan’s biggest automaker. 

MS forecast stagnant growth in output and sales for the firm, as it built up its reserves and strengthened its foothold in the auto industry. Daihatsu’s safety scandal and suspended production in the wake of an earthquake had impacted Toyota’s March quarter sales, and that the new fiscal year saw sustained production headwinds for Toyota. 

But the automaker has an “overwhelming competitive edge” in HEVs, MS analysts said. Sales of its plug-in HEVs were also seen growing in China, which has become a hotspot for EV and automobile sales. 

MS noted Toyota’s tie-ups with Subaru (OTC:FUJHY) and Mazda to further improve its electric engine technology. 

For the broader Japanese automaking industry, MS maintained an in-line stance, and said that earnings were expected to revert to normal levels after a strong fiscal 2024 as top-line growth slowed, incentives rose and labor costs increased.