On Tuesday, Morgan Stanley analyst Shinji Kakiuchi adjusted the firm's stance on Aisin Seiki Co Ltd. (7259:JP) (OTC: ASEKY), upgrading the stock from Equal-weight to Overweight and increasing the price target to ¥2,200 from the previous ¥1,900. The upgrade reflects a positive outlook on the company's non-Toyota sales of battery electric vehicle (BEV) eAxles, as development of the third-generation compact type progresses and product development is enhanced by the alliance with Mitsubishi Electric (OTC:MIELY) Corporation (Melco).
Aisin Seiki's development of regenerative brakes and aerodynamic devices is expected to contribute to higher electricity efficiency. The company is anticipated to see cost reductions with the planned launch of its 8th generation regenerative brakes in 2025. Morgan Stanley's analysis also points to an expectation of annual buybacks of approximately ¥100 billion starting next year, which equates to 7.9% of Aisin's ¥1.26 trillion market capitalization.
The analyst noted that Aisin's balance sheet reform has been supported by the sales of Denso shares last December and EXEDY shares last June. These strategic moves are expected to contribute to an improvement in return on equity (ROE), which is estimated to rise to 8.6% in the fiscal year ending March 2026 (F3/26) and to 10.5% in F3/27.
Despite a reduction in the operating profit forecast for F3/25 from ¥215 billion to ¥210 billion due to weak Toyota (NYSE:TM) volume, Morgan Stanley has raised the operating profit forecast for F3/26 from ¥270 billion to ¥285 billion. This adjustment is based on the expectation of better margins for brakes and increased sales of hybrid electric vehicle (HEV) and plug-in hybrid electric vehicle (PHEV) transmissions. With these projections, Aisin's mid-term operating profit target of ¥300 billion or more appears achievable.
InvestingPro Insights
To complement Morgan Stanley's bullish outlook on Aisin Seiki Co Ltd. (OTC: ASEKY), InvestingPro data provides additional context for investors. Despite the company's current challenges, including trading near its 52-week low, ASEKY maintains a strong dividend profile with a yield of 3.74% and a 33-year streak of consecutive dividend payments. This aligns with the InvestingPro Tip highlighting ASEKY as a significant dividend payer to shareholders.
The company's P/E ratio of 19.99 suggests a premium valuation, which is consistent with the InvestingPro Tip indicating that ASEKY is trading at a high P/E ratio relative to near-term earnings growth. However, with a price-to-book ratio of 0.58, the stock may be undervalued based on its assets, potentially supporting Morgan Stanley's upgraded price target.
While analysts anticipate a sales decline in the current year, ASEKY's revenue growth over the last twelve months stands at 6.64%, showcasing resilience in a challenging market. The company's profitability over the last twelve months, as noted in another InvestingPro Tip, further supports the positive outlook presented in the article.
For investors seeking a deeper understanding of Aisin Seiki's financial health and market position, InvestingPro offers 11 additional tips, providing a comprehensive analysis to inform investment decisions.
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