Honda Motor Company

1
Honda Motor Company

• Presented By Zach Bodine
• March 9, 2006

2
Stock Fundamentals

• Price
• 52-Week High
• 52-Week Low
• Average Volume (3 months)
• Market Capitalization

• 29.54
• 30.36
• 23.75
• 539,598
• 55.55 Bil

3
Investment Recommendation

• Buy/Hold

4
Key Ratios

• Ratios (all per share)
• P/E Ratio
• Earnings
• Dividend and Yield
• Financial Strength Ratios
• Quick
• Current
• Long-Term D/E
• Total Debt to Equity
• Return on Equity (per share)
• Return on Assets

• 13.46
• 2.19
• 0.34 (1.10)
• 0.84
• 1.13
• 0.839
• 13.52
• 5.03

5
Growth Percentages

• Over the past 5 Years
• Revenue
• Dividend Per Share
• Earnings Per Share
• Operating Income

• 7.2
• 19.42
• 14.1
• 8.2

6
Company Description

• Automotive Manufacturers Major
• Automobiles
• Motorcycles
• Power Products
• Financial Services

• Honda is the Worlds Largest motorcycle
  manufacturer but is most known for its automotive
  industry

7
Global Position

• Over 9 month span
• Honda generated 59 of its automobile profit from
  the North America alone, which was an increase of
  2.5 from a year ago.
• However, Asia led in Motorcycle sales with 27.5,
  while N.A. had 25.5. This was opposite of a year
  ago.

• Sales for the last 9 months ended Dec 30, 2005
  totaled 60.9B, and Sales for all of 2005 totaled
  80.5B.

8
Hondas Automobile Brands

• Hondas principal automobile products include
  passenger cars under

• Legend, Accord, Civic,
• City, Fit Saloon, Acura RL, Acura TL, and Acura
  TSX brands

• Elysion, Odyssey, Step Wagon, Edix, FR-V, Stream,
  Fit, Jazz, Pilot, Element, CR-V, Acura MDX, and
  Acura RSX brands

• Multiwagons, Minivans, Sport utility vehicle, and
  Sports coupe under

9
Consumer Reports Top Automobile picks for 2006

• Top Small Sedan (less than 20gs)
• Top Family Sedan (20-30gs)
• Top Upscale Sedan (30-40gs)
• Luxury Sedan
• SUV (30gs and more)
• Small SUV (less than 30gs)
• Top Minivan
• Top Pick-up Truck
• Green Car
• Fun to drive

• Honda Civic
• Honda Accord
• Acura TL (Honda)
• Infiniti M35 (Nissan)
• Toyota Highlander Hybrid
• Subaru Forester
• Honda Odyssey
• Honda Ridgeline
• Toyota Prius
• Subaru Imprezza

• Additionally, Honda was 2nd overall in vehicle
  reliability right behind Lexus

10
Marketing/Technology

• The new ACE System (Advanced Compatibility
  Engineering)
• 5 star rating
• Hybrid Engines
• ASIMO
• Jet Engines Manufacturing
• Nattokinase

11
Research and Development

• Honda currently has individualized RD facilities
  in Japan for motorcycles, automobiles, and power
  products, and a motorcycle RD center in China
  for its increasing market demand.
• HRI (the Honda Research Institute) is located in
  Japan, U.S., and Germany.
• - Research focus on robotics technology,
  automotive safety, ultra lightweight
  products, and fuel cell technology
• - Deriving automotive fuel from plants.
• Honda also has networked facilities in the UK,
  Germany and Italy (to help focus on the European
  market more independently)

12
Management Structure

• President and Representative Director
• Takeo Fukui
• Age 62

• Executive Vice-President and Representative
  Director
• Satoshi Aoki
• Age 60

• Promotion of Objective Management
• Staff composed of 22 personnel. Two director
  positions and one auditor assigned annually
  outside the company.
• Temporary directors are paid according to how
  well the Company performs during their tenor.

13
Image

• New Jersey Supreme Court Honda sued for engine
  failure by a leasee.
• Magnussen Warranty Act
• Engine failure occurred _at_ 22,000 miles
• Losing company must cover all legal fees
• AAM supports Honda
• Clean- Fuel tax deduction (2005)
• Tax breaks under new energy bill (2006)

14
Competitive Analysis
15
Industry Trends

• Trend of Companies performing well in foreign
  markets, but not domestically.
• GM Dealing with Health care problems (100B
  annually)
• Sold GMAC Subsid.
• Possibility of bankruptcy in the future
• Ford 1.6B decline in car sales from years
  ending 04 05
• Sold Hertz rentl car business
• Chrysler Changes management around
• Only U.S. manufacturer not in the red
• Volkswagen high prices, low quality, plus labor
  force issues
• Toyota and Honda are prospering well in U.S.
  market
• Everyone looks to China for expansion

16
Market PerformanceOne Year Price Performance
Compared to the SP 500
17
Market Performance5 year Price Performance
Compared to the SP 500
18
Common Size Financials
19
Valuation Data For Return on Equity

• Beta .46
• Risk Free Rate .486
• Avg. Market Risk 11

Re Rf B(Equity Risk Premium) Re
.0486.46(.11-.0486) 7.68
20
Valuation of Stock Price

• Intrinsic Value based on Future Cash Flows
• Conservative Growth rate

Normal Growth Re 7.68 Owner earnings
3.14B Growth rate 4 Second Stage Growth rate
2.5 Estimated Intrinsic Value 39.11
21
Valuation continued

• Diminishing Growth
• Using revenue growth of 14.3 from 2003-2004, and
  6 from 2004-2005, you could project that revenue
  growth from 2005-2006 could be equal to
• 6/14.3.4196
• .41966 2.52 (new assumed growth rate)
• Leaving all other variables the same
• Estimated Intrinsic Value 34.84

22
Valuation continued..

• Impressive growth
• By Viewing the table which displays sales in yen
  over the 9 months ended 12/31/2004, and then
  looking at the sales in yen for the 9 months
  ended 12/31/2005 you get the following numbers
• 2004 sales 6300551
• 2005 sales 7074255
• Growth rate 7074255/6300551 12.2
• Adjusted to 10
• Estimated Intrinsic Value 62.50

23
Analysts Ratings finance.yahoo.com
24
Pros and Cons

• Pros
• Fuel/ cost efficient products and technology
• Extensive RD programs
• Superior Technology
• Moving towards differentiated product lines
• One of the few currently profiting companies in
  its industry
• Objective Management Structure
• Continuous increase in automotive sales in North
  America, particularly U.S., and in Europe as
  well.
• Cons
• Fluctuation of Exchange rates, makes for
  inconsistent earnings
• Japans Economy
• Automotive industry very susceptible to interest
  rates
• Toyota may be a better buy

25
Questions

• ?