On Thursday, Mitsubishi Motors (OTC:MMTOF) Corp. (7211:JP) (OTC: MMTOF) experienced a shift in stock rating as Morgan Stanley moved its stance from Overweight to Equalweight, adjusting the price target to JPY370.00 from the previous JPY500.00.
The change comes as a response to the heightened competition that the automaker faces in the ASEAN market, particularly from Chinese Original Equipment Manufacturers (OEMs).
Morgan Stanley's previous Overweight rating was influenced by the anticipation of new model releases in the ASEAN market, as well as potential positive impacts from collaborations with Honda (NYSE:HMC) and Nissan (OTC:NSANY).
Although the firm remains positive about these factors, the recent downgrade to Equalweight has been made to account for the risks associated with the increasing presence of Chinese competitors.
These competitors are seen as a significant threat to Mitsubishi's sales volume in the region, especially for its MPV model Xpander and the smaller models Mirage and Attrage.
The revised price target is based on a target Price-to-Earnings (P/E) ratio of 4 times, a decrease from the previous 5 times, which now includes a discount to reflect the competitive risks in the ASEAN market. This valuation is drawn from the firm's Fiscal Year 3/26 Earnings Per Share (EPS) estimate.
Despite the downgrade, Mitsubishi Motors was not rated Underweight due to the expectation of forthcoming details regarding the company's partnerships with Honda and Nissan.
Morgan Stanley anticipates that once there is more clarity on these collaborations, there could be an announcement of enhanced shareholder returns.
Moreover, the firm suggests that Mitsubishi Motors' shares currently appear undervalued at their present level, signaling potential for future reassessment.
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