Toyota shares rise as carmaker plans to double ROE
Logo of Toyota Motor Corporation
Shares of Toyota Motor Corp. surged 5.4% in early trading in Tokyo on Wednesday, pushing the stock towards its largest two-day gain since August.
The increase came after reports that the Japanese carmaker plans to double its target for return on equity (ROE) to 20%, signalling optimism for higher profitability. This push is expected to help Toyota further accelerate profit margins, according to analysts, reports Bloomberg.
While a spokesperson for Toyota downplayed the report, stating that the company does not have an "explicit target or deadline" for its ROE, the news has already fuelled investor optimism. A report in the Nikkei newspaper cited an unnamed Toyota executive, claiming that the carmaker is moving forward with plans to increase its ROE target. This announcement helped the stock achieve a 10% two-day gain, marking a strong performance amid a generally weak market environment.
Analysts Watch for Impact on Profit Margins
If Toyota follows through with the target, analysts believe the company will need to boost earnings across its value chain to achieve the expected return. Shinji Kakiuchi, an analyst at Morgan Stanley MUFG Securities, noted that the company would likely have to enhance capital efficiency, potentially through actions such as selling off equity holdings to improve shareholder returns.
The rally in Toyota’s stock also reflects the company’s ability to weather challenges, including a plateau in global sales and a pause in production at two factories due to sluggish demand. Despite these hurdles, Toyota shares have risen more than 20% this year, outperforming Japan’s broader Topix index, with a weaker yen contributing to a boost in revenue.
Toyota’s decision to pursue a higher ROE target signals its commitment to maintaining strong financial performance, even as it faces domestic and international challenges. Investors will be keen to see how the carmaker navigates these pressures and whether it can successfully boost profitability to meet its ambitious goals.
Additionally, Honda Motor Co. Ltd. shares soared 13.55% in Tokyo trading on Tuesday, their biggest one-day gain since 2008.
