Toyota to cut 2009 sales target, shares to struggle

A car enthusiast inspects a model of a Toyota A-Bat hybrid car during the 2nd Philippine International Motor Show in Manila August 21, 2008.

TOKYO (Reuters) - Toyota Motor Corp (7203.T) is set to trim its goal of selling more than 10 million vehicles in 2009 by at least 5 percent, and with no sign of the U.S. economy turning a corner, its shares are likely to languish near three-year lows.

Hit by a meltdown in demand for gas-guzzling vehicles in North America, Toyota last month cut its 2008 global sales forecast by 3.7 percent to 9.5 million vehicles, inevitably delaying a plan to sell 10.4 million vehicles next year.

Japanese media reported this week that Toyota was set to revise the 2009 figure to around 9.8 million vehicles at its annual business briefing next Thursday, preventing it from becoming the first automaker to hit the 10 million milestone next year.

"Looking at the state of the North American and European markets, frankly it's difficult to expect an improvement next year," Goldman Sachs auto analyst Kota Yuzawa said.

On the positive side, investors and analysts believe the world's largest and most profitable car maker will be well positioned when the global slump ends.

"The U.S. economy is weak but there's a feeling that it'll be the first region to recover," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management. "In that sense, the first auto stocks to bounce back will probably be the companies with a large exposure to North America, like Toyota."

STOCK STRUGGLES

The bad news is that shareholders should not expect a quick recovery in Toyota stock.

Shares hit a near-three year low earlier this month, shortly before it reported a 28 percent fall in first-quarter profits.

At Friday's closing price of 4,770 yen, Toyota's stock is richly priced compared with other global carmakers, making a rebound difficult to justify without a weakening in the yen, which boosts Toyota's bottom-line.

With a price-to-estimated earnings ratio of 11.6 times, Toyota carries a big premium over most of Europe's top automakers. Daimler AG (DAIGn.DE), BMW AG (BMWG.DE), PSA Peugeot Citroen (PEUP.PA), Renault SA (RENA.PA) and Fiat SpA (FIA.MI) all trade at 5-6 times estimated earnings, as investors worry about the impact from a more recent downturn in the European market.

While maintaining a Buy rating on Toyota, Goldman's Yuzawa conceded it would be tough to expect the shares to rally as long as the North American and European car markets continue to slide.

"The company's plan calls for production to reverse a slide in the January-March quarter, but there's no guarantee that demand won't slide further," he said.

Toyota's sales fell 7 percent in both the United States and Europe in the first half of this year.

BAD, BUT BETTER THAN MOST

Still, analysts are upbeat about Toyota's competitive advantage over most rivals.

Toyota's deep pockets provide a handy buffer, allowing it a luxury rivals don't have to ride out downturns. Toyota's last annual profit of about $16 billion is roughly equal to the current market capitalizations of General Motors Corp (GM.N) and Ford Motor Co (F.N) combined.

As bad as conditions are in North America -- Toyota is idling several factories for three months until November after its bet on large pickup trucks backfired amid high fuel prices -- the automaker has swiftly put in place measures to meet changing consumer needs.

At a time when rivals such as GM, Ford and Nissan Motor Co (7201.T) are shedding employees in North America, Toyota is keeping its workers at the suspended factories, training them up with an eye to meeting future needs.

Toyota is also adjusting plants to build more of its smaller, popular cars such as the Yaris and Corolla models this year, while from 2010, it will start making the hot-selling Prius hybrid car instead of the Highlander SUV as originally planned at a factory under construction in Mississippi.

"What's commendable about Toyota is that it's continuously sowing the seeds for future growth," UBS analyst Tatsuo Yoshida said.

The list of projects is long: with at least two new hybrid-only vehicles, including the third-generation Prius, planned due for launch in 2009, Toyota aims to more than double annual hybrid sales to 1 million units soon after 2010.

It is also developing a cheap, compact car to fill a hole in the largest vehicle segment in emerging markets such as India and Brazil, with plans to begin production from 2010.

"We continue to take a positive view of the future growth potential suggested by Toyota's strengths in environmental technologies such as hybrid vehicles," NikkoCiti analyst Noriyuki Matsushima wrote in a report this month.

Consensus forecasts expect Toyota's net profit to grow 12 percent to 1.475 trillion yen ($13.55 billion) in the year to March 2010 from projections for this business year, and further to 1.6 trillion yen the following year, according to Reuters Estimates.

($1=108.86 Yen)

(Editing by Lincoln Feast)