TOKYO -- UBS Warburg on Tuesday lowered its price targets on Japan's top five auto makers, citing rising risks from a stronger yen, U.S. economic conditions, crude oil prices and a possible war in Iraq.
The brokerage kept its investment ratings on all five companies unchanged, at a "buy 1" for Toyota Motor Corp. and Honda Motor Co., "neutral 1" for Nissan Motor Co., and "neutral 2" for Mitsubishi Motors Corp. and Mazda Motor Corp.
"Geopolitical risk appears to be rising sharply in the run-up to a possible U.N. second resolution on Iraq," analyst Takaki Nakanishi wrote in a report.
"Rising oil prices are fuelling growth in global gasoline prices, presenting a further disincentive to auto consumption."
While lowering his price target on Honda by 500 yen to 5,500 yen, Nakanishi said he viewed Honda as the top pick due to its firm North American earnings.
In contrast, he said Nissan was exposed to greater risk in that region since it is expanding its investment there at a time when market conditions are deteriorating. He lowered Nissan's price target to 930 yen from 1,040 yen.
The brokerage also cut its price targets for Toyota by 500 yen to 3,300 yen, Mitsubishi to 270 yen from 300 yen, and Mazda to 230 yen from 260 yen.
Nakanishi said he believed Toyota's shares had hit the bottom of a long downtrend, recommending it as a vital choice for sector portfolios in the second half of the year.
But he said Mazda and Mitsubishi lacked sufficient product, marketing and brand strength to stave off the risk of a sharp deterioration in their core earnings fields.
With the exception of Mitsubishi, shares of all five top auto makers have lost ground in the year to date, partly due to the dollar's fall against the yen.
Despite the Japanese government's repeated attempts to stem an export-crippling rise in the yen, the dollar was near seven-month lows around 116.88 yen on Tuesday morning.
Nakanishi estimated that every one-yen fall in the dollar would shave about two percent from corporate earnings. Toyota and Honda, Japan's top two auto makers, are assuming a dollar rate of 122 yen and 123 yen respectively for the business year ending this month.