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Toyota Shares Gain for Second Day After Report on ROE Target

By Kana Nishizawa
The Toyota Motor Corp. logo in the Toyota City Showcase exhibit at the company's Mega Web car theme park in Tokyo, Japan, on Monday, Nov. 1, 2021. Toyota is scheduled to report second-quarter results on Nov. 4. Photographer: Kiyoshi Ota/Bloomberg (Kiyoshi Ota/Bloomberg)

(Bloomberg) -- Toyota Motor Corp. shares climbed for their biggest two-day advance since August on expectations of a higher return-on-equity following a report the Japanese automaker is planning to double its target.

The stock gained 6% in Tokyo, capping an 11%, two-day gain. Shares advanced on Wednesday after the Nikkei newspaper reported the company plans to increase its ROE to 20%, citing an unidentified executive. A spokesperson said that Toyota “doesn’t have an explicit target or deadline” for ROE.

If the report is accurate, “the company would need to boost earnings from the value chain, in order to further propel profit margins upward,” Morgan Stanley MUFG Securities Co. analyst Shinji Kakiuchi wrote in a report. “We’ll also be watching for Toyota, as a part of moves to improve capital efficiency, to take funds from selling its equity holdings to bolster shareholder returns further.”

Toyota shares have jumped over 20% this year, outperforming the broader Topix index, as a weaker yen helped boost income in its home currency. Still, the latest announcement by the world’s biggest automaker showed global sales plateaued in November as lackluster demand coalesced with a pause in production at two plants.

Here are what other analysts and investors are saying on Toyota:

SBI Securities Co. (Koji Endo)

  • Toyota first revealed its 20% ROE target in its interim financial results briefing
  • The target is ambitious; Toyota will need to take on drastic measures, and a large-scale shareholder return policy will be essential to achieve its goal such as increasing dividends or conducting buybacks

Shinkin Asset Management Co. (Naoki Fujiwara)

  • Talks of Toyota’s 20% ROE target leads to expectations of unwinding of cross-holdings, and shareholder returns
  • Investors likely focused on the speed of which all this may happen

Daiwa Securities Co. (Eiji Kinouchi)

  • Many investors have been underweight the stock, so there are expectations its positive performance will continue after the new year

(Adds analyst comments)

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