S&P: Japan's Toyota Tsusho Corp. Ratings Affirmed At 'A+/A-1', Outlook Stable; Stand-Alone Credit Profile Revised To 'bbb+'
We affirmed our ratings on Toyota Tsusho because it maintains its status as a highly strategic member of Toyota Motor group, in our assessment. On the basis of this assessment, the long-term rating on Toyota Tsusho remains one notch lower than the 'aa-' group credit profile (GCP) for Toyota Motor group, reflecting the likelihood of support from the group in a time of need. Toyota Tsusho plays a critical role closely aligned with group strategy in enhancing production efficiency and securing raw materials. For example, the company provides sophisticated logistics services for auto parts and steel materials, using its ample experience with Toyota Motor production systems, and makes investments in interests in lithium mining projects.
As a general trading and investment arm of Toyota Motor group, Toyota Tsusho is highly competitive in the automotive business thanks to its strong business base and robust value chain. In the past decade or so the company has accelerated investment to expand its nonautomotive businesses, but it compares unfavorably to leading peers in terms of overall profits and scale and scope of business, and its track record in nonautomotive fields remains limited. Therefore, the company's business risk profile is unlikely to improve markedly in the next one to two years.
Toyota Tsusho's capital adequacy has worsened slightly because large impairment losses led to net losses in fiscal 2015 (ended March 31, 2016). However, capital adequacy remains sufficient for our assessment of strong. Our forecasts for the company's adjusted capital (shareholders' equity) will likely continue to exceed the risk-based capital (risk assets) required under our 'A' stress scenario, and the capital adequacy ratio compares favorably with that of its peers. We expect the company to secure solid net profit in fiscal 2016 and thereafter because its remaining exposures to resource businesses are small and solid performance in its automotive businesses is likely to continue. Given that we do not expect risk assets to balloon, because of the company's disciplined investment policy, adjusted capital is likely to continue to exceed risk-based capital).
Our assessments of the business risk profile as satisfactory and financial risk profile as modest are unchanged and, therefore, the anchor we derive from the combination of these assessments remains 'bbb+'. We have revised the assessment we make for comparable rating analysis to neutral from positive. We had previously reflected the relative strength of the company's capital adequacy into the assessment but now also take into account our view that the company's business profile is likely to remain slightly weaker than that of leading peers in scale and scope. Our assessments of other modifiers remain unchanged. As a result, we revised the SACP on Toyota Tsusho to 'bbb+', which is the same as the anchor.
The stable outlook reflects the company's highly strategic status within Toyota Motor group and our view that Toyota Motor group will maintain its credit quality. We might consider upgrading Toyota Tsusho if Toyota Motor group's credit quality improves or we determine that Toyota Tsusho's status within the group has risen to core from highly strategic. Conversely, we might downgrade Toyota Tsusho if Toyota Motor group's credit quality deteriorates or we determine that Toyota Tsusho's strategic importance within the group has declined.