Toyota Industries Corp (6201)
Capitalizing on the Toyota Group restructuring
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If you’re interested in a large-cap idea that has a mix of statistical cheapness, a clear catalyst, and an intriguing Japan corporate governance angle, then Toyota Industries Corp is worth a closer look.
A little-known fact: Toyota Industries Corp (6201), not Toyota Motor Corp (7203), was actually the “original” Toyota (from here, I will refer to the former as “TIC” and latter “TMC” to avoid confusion).
Founded in 1926 by Sakichi Toyoda to manufacture the Type G automatic loom, TIC expanded into automobiles in 1933. It built its first passenger car prototype (Model A1) in 1935 and spun off the automotive division as Toyota Motor Co. in 1937. It also spun off its steel division in 1940, now known as Aichi Steel.
In 1956, TIC entered the materials handling business, producing forklifts—a business that has since become its core. TIC is now the world’s largest forklift maker, with a 30% global market share (vs. KION at 14% and Jungheinrich at 9%). This business now accounts for 67% of TIC’s sales and 83% of its operating profit.
Where’s the opportunity?
At JPY 13,000 per share, the market cap of TIC is JPY 3.9 trillion (adjusted for treasury shares).
TIC owns 1.19 bn shares of TMC (9% of S/O), currently valued at JPY 3.3 tn. This accounts for 85% of TIC’s market cap.
TIC owns stakes in various Toyota group companies, collectively worth JPY 0.9tn, or 23% of TIC’s market cap. The largest are:
Denso: 157 mn shares (5.4% of S/O), JPY 306 bn market value
Toyota Tsusho: 118 mn shares (11.2% of S/O), JPY 304 bn market value
Toyota Fudosan: Unlisted, fair value of JPY 132 bn according to TIC’s March 2024 Yuho.
Ibiden: 6.2mn shares (4.5% of S/O), JPY 26 bn market value.
Aisin Corp: 7.7 mn shares (3% of S/O), JPY 14 bn market value
Other listed and unlisted stakes: Fair value of roughly JPY 90 bn as of March 2024 according to Yuho.
TIC has JPY 1.3 tn of net debt (total debt minus cash).
Major shareholders of TIC include: TMC (24% of S/O), Denso (6.8%), Toyota Fudosan (5.3%), Toyota Tsusho (5%), Aisin (2%). Thus, Toyota group firms own at least 43% of TIC shares.
Confused yet? I hope not! This is typical of Toyota group shareholding structure.
Adding these up, TIC has an EV of JPY 1 trillion and is forecasted to generate JPY 220 bn in OP for FY2025/3. That’s an EV/EBIT of just 4.5x for the world’s leading forklift manufacturer. Given its growth profile, I think a more reasonable valuation would be 10-15x EBIT, implying a potential 2-3x return potential.
The undervaluation is clear. But what’s the catalyst for unlocking this value? Toyota Group restructuring.