Toyota Motor Corp reported a stronger-than-expected quarterly operating profit, shrugging off a firm yen and the damaging impact of flooding in Thailand, and raised its annual forecast, helped by cost cuts and Japanese government subsidies.

COMMENTARY:

TOMOICHIRO KUBOTA, MARKET ANALYST, MATSUI SECURITIES CO

They lifted their pretax profit forecast for the year to March 2012 to 270 billion yen from 170 billion yen, and this can probably be taken as a straightforward positive (for its shares).

It gives a positive impression, with electronics and other sectors issuing downward revisions.

As for a rebound for the stock to 3,000 yen from tomorrow onwards, these results could get the job done.

In terms of their currency rate forecasts, their euro/yen outlook looks a bit rosy, so this leaves some cause for worry.

FUMIYUKI NAKANISHI, GENERAL MANAGER OF INVESTMENT AND RESEARCH, SMBC FRIEND SECURITIES, TOKYO

It is a surprising, good number. I think most in the market were expecting much worse. The operating profit forecast for the year to March is nearly halved from the previous year but that doesn't mean it's going to fall into a loss, and that sets them apart from other Japanese corporations.

But just looking at the fourth quarter, it doesn't look like the recovery is going to be as robust as expected and there are a lot of downside risks, especially considering Europe. But there is a sense of positive surprise at their results. I think we are going to see cost-cutting benefits from Toyota's negotiations for lower material prices with Nippon Steel and probably other firms.

KOJI ENDO, MANAGING DIRECTOR AT ADVANCED RESEARCH JAPAN

It (the impression of the results) is really weak. They have revised the operating profit upwards by 70 billion yen, but that still remains very low... They will sell 2.4 million cars in the fourth quarter and only be able to make 50 billion yen in operating profit. This means their automobile business is in a really tough situation.

Compared with Honda and Nissan, Toyota's pace of profits returning is very slow. The profit performance of their automobile business is abnormally low. The issue of high fundamental costs appears not to have improved at all.

In terms of costs, they can work on cutting fixed costs... Their production capacity, number of employees, number of parts makers, number of dealers, vehicle lines, they have too much of everything... Compared to the pace of the sales drop, their cost-cutting is not progressing at all. The cost cut effects have yet to show up in the figures.

The other issue is the top line, which is struggling to grow... Even if the number of cars they can sell increases, profits won't grow so much.

The share price has been rising ahead of the next business year when profits are likely to grow quite a bit and the PER has returned to 1. But the PER is unlikely to go up from here... Honda and Nissan are better off at this stage.

MAKOTO KIKUCHI, CEO OF MYOJO ASSET MANAGEMENT, TOKYO

Analysts' consensus on operating profit was 300 billion yen so it (Toyota's new forecast) was slightly weaker, but this is not so important. More important is if Toyota can recover in the next fiscal year.

The outlook is not so positive as I fear the economic recovery will not be as strong as analysts expect, which will drag on Toyota's performance, but this is not specific to Toyota.

Today's result will not have a major impact on Toyota's share price.

TOSHIYUKI KANAYAMA, SENIOR MARKET ANALYST, MONEX SECURITIES, TOKYO

The operating profit forecast was below consensus so it is a bit of a disappointment. But that was partly due to the floods in Thailand and the market is looking at the next financial year, rather than this year.

According to my back-of-the-envelope calculations, its fourth-quarter operating profit is around 150 billion yen. The key for Toyota shares will be whether profit will rise to around 200 billion yen per quarter or around 800 billion yen in the year.

I don't think they can easily drop their target of domestic production of 3 million units.

The important point for now is whether they can generate profits that match market expectations in the next financial year.

(Reporting by Chang-Ran Kim; Additional reporting by Hideyuki Sano, Miki Kayaoka, Yoko Kubota, Mari Saito)

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