UPDATE 4-Toyota lifts forecasts only slightly as yen bites

* Q2 op profit 111.46 bln yen vs consensus 142 bln yen

* Lifts FY op profit forecast to 380 bln yen from 330 bln
yen

* Forecast still below consensus of 495.6 bln yen

* Japan ops deep in red on yen, heavy export dependence

* Shares end up 1.9 pct before results, lag broader market
(Updates with chart link)

By Chang-Ran Kim, Asia autos correspondent

TOKYO, Nov 5 (BestGrowthStock) – Toyota Motor Corp (7203.T: )
cautiously nudged up its profit forecast, underscoring how
vulnerable Japan’s biggest company is to the firm yen and a
tepid sales recovery that are weighing on its shares.

In the first half of the business year, the world’s top
automaker had been rescued by Japan’s generous incentives
favouring the hybrid segment it dominates and managed to keep
its domestic factories humming at a reasonable rate.

But part of the government’s stimulus ran out in September,
meaning Toyota’s sales in Japan would likely drop 25 percent in
the second half, an executive said on Friday.

A stronger yen has compounded the problem, making exports
from Japan less competitive and less profitable. Toyota ships
out about half the vehicles it produces in Japan, compared with
about 30 percent for Honda Motor Co (7267.T: ).

“I don’t want to think about how we are going to protect
production levels in Japan if the current forex levels
continue,” Executive Vice President Satoshi Ozawa told a news
conference.

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Charting Toyota: http://link.reuters.com/heb63q

Q2 results table: [ID:nT5CWOBGE3]

Analyst views: [ID:nTOE6A401Z]

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Toyota is now assuming an average dollar rate of 82 yen for
the second half — slightly more favourable than the current
rate of about 80.70 yen (JPY=: ).

“I think Toyota’s growth will be slower than total industry
volumes given the high fixed costs for its domestic business
and since their manufacturing base is skewed towards places
like Japan and Canada where the currency is currently strong,”
said Nomura Securities auto analyst Masataka Kunugimoto.

“That makes it difficult to remain competitive and leads to
lower market share in developed markets such as the U.S. and
Europe. That is one of the reasons Toyota’s growth is
significantly slower than the rest of the pack,” he added.

For the year to March, Toyota now expects operating profit
of 380 billion yen ($4.71 billion), up from its previous
forecast of 330 billion yen but short of the average 495.6
billion yen forecast by 21 analysts polled by Thomson Reuters
I/B/E/S.

The maker of the Prius hybrid lifted its net profit
forecast to 350 billion yen from 340 billion yen.

Toyota’s tame forecast revisions contrast with those of
Nissan Motor Co (7201.T: ), which lifted its guidance past
consensus figures a day earlier, sending its shares up 6
percent on Friday. [ID:nTOE6A306S]

Toyota shares have fallen 5.8 percent in the past three
months, faring worse than most other Japanese auto stocks and
Tokyo’s main Topix index (.TOPX: ), which lost 3.5 percent.

SAVING JAPAN

Toyota President Akio Toyoda has vowed to focus more on
improving Toyota’s quality checks and customer satisfaction and
less on sales volumes as he aims to steer the company founded
by his grandfather back from a debilitating recall crisis.

But the damage still lingers, especially in China where
rivals say Toyota is leading the escalating price wars.

Toyota’s sales fell in both China and the United States
last month, bucking an expansion in the world’s two biggest
markets where rivals such as Hyundai Motor Co (005380.KS: ) and
Volkswagen AG (VOWG_p.DE: ) are closing the gap. [ID:nTOE6A1002]

In the United States, its most important market, Toyota
(TM.N: ) was alone in reporting a drop in sales last month,
although Executive Vice President Yukitoshi Funo said that was
due to especially strong sales in the year before.
[ID:nN0398672]

While Toyota has managed to shed the massive post-Lehman
losses, Toyoda now faces the daunting task of saving its
export-dependent Japanese operations, which are reeling under a
near record-high yen.

“President Toyoda has given us a mission to do everything
we can to keep a domestic production level of at least 3
million units a year,” Toyota’s Ozawa said.

“In order to protect the Japanese economy, and Japanese
jobs, I feel that is something we need to do.”

In contrast to the higher group-based profit forecasts,
which include Toyota’s overseas operations, the company lowered
its parent operating profit forecast for the second time, by 60
billion yen to 490 billion yen citing currency losses.

“The (dollar) is around 80 yen, so (with their new
assumption) foreign exchange could still be a negative factor
for them,” said Kazutaka Oshima, president of Rakuten
Investment Management in Tokyo.

For July-September, Toyota’s group operating profit soared
92 percent to 111.5 billion yen, but lagged the average 142
billion yen estimated by four analysts surveyed by Reuters.

Second-quarter net profit, which includes earnings made in
China, was 98.7 billion yen, more than quadrupling from 21.8
billion yen a year earlier.

Toyota nudged up its annual global sales forecast to 7.41
million units from 7.38 million, saying stronger demand in Asia
will offset weaker sales in North America.

Toyota ended up 1.9 percent at 2,964 yen before the results
were announced on Friday, lagging most other auto stocks and
the broader market.
(Additional reporting by James Topham; Editing by Edwina Gibbs
and Mathew Veedon)

UPDATE 4-Toyota lifts forecasts only slightly as yen bites