Honda is unique among its Automotive peers owing to its global leadership position within the motorcycle market, in which it maintains a 25% global market share and consistent low-double-digit operating margins. The larger automotive business – which accounts for roughly two-thirds of Honda’s consolidated revenue – has seen its profitability decline since 2017 and remains in turnaround mode.

While we believe its credit rating has upside potential to mid-A over time – its longtime rating prior to the pandemic that would enable it to access the Tier 1 CP market – we do not expect positive rating momentum until the automotive supply chain normalizes and Honda improves the performance of its automotive segment.

Management raised its FY23 guidance for Motorcycle unit wholesales, lowered its Automobile unit wholesales and net revenue, while reiterating its guidance for operating profit, and net income. Honda’s Motorcycle unit wholesales growth forecast was boosted by 2% and the new target now represents a 10% YoY increase. Its Automobile unit wholesale target was lowered 6%, with the reduction driven by lower expectations in most regions, especially Asia. The company’s new Automobile wholesale target represents a 5% YoY decline, although management expects to inflect to growth of 3% YoY in F4Q23.

Honda’s FY23 consolidated operating profit guidance of ¥870 bn is unchanged from its previous guidance, although it now expects the full-year contribution from currency to be slightly lower, offset by modestly improved price/cost impacts and lower warranty and R&D costs. We expect Automobile segment profit to improve sequentially and YoY in F4Q23 as wholesale volumes improve and the pricing environment remains relatively firm.