TOKYO: Shares of Japanese automakers fell on Monday after Citigroup cut its ratings across the sector, saying it expected vehicle production to recover only in autumn after the devastating earthquake that rocked Japan last month.
Toyota Motor Corp. Nissan Motor Co, Honda Motor Co and others have suspended most vehicle output in Japan since the magnitude-9.0 earthquake on March 11 disrupted parts supply, and the impact is spreading overseas as parts inventory runs out.
"We do not think the fall in earnings and slowness of the recovery (in vehicle production) has been fully priced in yet," Citigroup auto analyst Noriyuki Matsushima wrote in a report.
"While some investors may be tempted to position for a recovery in the (October-March) second half and out, the full extent of damage to the supply chain and production disruption from the power outages is being underestimated by the market, and we would avoid the sector as things stand," he added.
Matsushima now rates all automakers "sell", with the exception of Suzuki Motor Corp and truck makers Isuzu Motors Ltd and Hino Motors Ltd, for which he assigned a "hold".
In late afternoon trade, Toyota shares were down 2.5 percent, Nissan fell 2.4 percent, and Honda lost 2 percent.
Matsushima previously had a "hold" rating on Toyota and Nissan, and a "buy" on Honda.
A dearth of supply from Renesas Electronics Corp, the world's top maker of microcontroller chips, is one of the main causes of the disruption, including to automakers outside Japan. Renesas has a 40 percent share of the global market for automotive microcontroller chips.
Matsushima said he was assuming a 15 percent drop in Japanese automakers' global auto output in the business year that started this month.
In a worst-case scenario, the sector's combined operating losses in the first half would be the "biggest ever, surpassing even those posted at the time of the Lehman Brothers bankruptcy," he said.
Citigroup now expects Toyota to lose 588 billion yen ($6.9 billion) in the April-September first half and break even at the operating level for the full year to March 31, 2012.
It expects a full-year operating profit of 160 billion yen at Nissan and 280 billion yen at Honda.
Its previous operating profit forecasts for Toyota, Nissan and Honda were 850 billion yen, 670 billion yen and 750 billion yen, respectively.
Given the broad-based supply bottleneck from parts makers within the 20 km exclusion zone of Tokyo Electric Power's (TEPCO) nuclear power plant to factories damaged by the tsunami Matsushima said he was assuming the supply chain would not be restored until autumn.
Automakers could also face power shortages, especially when consumption peaks during the summer, in the operating areas of the affected plants of TEPCO and Tohoku Electric Power.
On Friday, Toyota and Nissan announced plans to resume production at all domestic factories by April 18, but said output levels will be at half their original plans and at the mercy of parts availability. Honda restarted assembly at all of its Japanese factories on Monday, also at half the planned volumes.
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