Mazda Motor Corp. (7261) rose to a more than one-year high in Tokyo trading after Nomura Holdings Inc. (8604) rated the company as its top auto-industry pick, citing the improving profitability of new vehicles and a weaker yen.
Mazda, expecting to return to profit after four consecutive annual losses, climbed 7.1 percent on the Tokyo Stock Exchange to 166 yen, the highest close since November 2011. The benchmark Nikkei 225 Stock Average rose 0.9 percent.
“Profitability has improved considerably on new-generation vehicles with high fuel efficiency, such as the CX-5 and later models,” Masataka Kunugimoto, a Tokyo-based auto analyst at Nomura, wrote in a report dated yesterday. The benefit of a weaker yen outweighs slowing sales of older models in North America and Europe, the analyst wrote.
The yen reached a 27-month low against the dollar today on speculation Prime Minister Shinzo Abe, who was sworn in yesterday, will push the central bank to boost cash infusions and further weaken the currency. It touched a 16-month low against the euro.
Mazda has risen 30 percent in the past month in Tokyo trading, while the yen has depreciated 4.1 percent, making it the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.
A one-yen movement against the dollar has a 3.5 billion yen ($41 million) effect on the carmaker’s annual operating profit, while the same move against the euro will make a 1.2 billion yen difference, according to Mazda.
Mazda made 71 percent of its cars in Japan last fiscal year, while domestic sales contribute 16 percent of the global total.
Nomura raised its operating income estimate for Mazda to 96.1 billion yen for the year ending March 31, 2014.
“If the recent yen depreciation trend continues, earnings could have further upside,” Kunugimoto said in the report. He rates the shares buy.
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