November 23rd 2004.

Yamaha Motor has diversified its activities into four main businesses - motorcycles, marine engines and boats, specialty equipment, and industrial machinery. The company has successfully contained revenue fluctuations and strengthened its resilience to sudden changes in certain markets by decentralizing each business over Japan, Asia, Europe and North America.

Yamaha has recently enjoyed strong demand for its motorcycles and marine products. It has also streamlined its low-margin operations, notably boat/yacht production for domestic clients. The firm has steadily built up equity capital and significantly reduced debt.
As part of its effort to reduce costs, Yamaha has transferred production of inexpensive 50cc scooters to Taiwan.

In the Asian market, the company has been seeking to expand motorcycle operations, especially in Indonesia, to meet growing local demand. However, it still significantly lags behind Honda Motor and other Japanese motorcycle makers in terms of market share. The gap is particularly wide in India.

In specialty equipment, centring around its four-wheel all-terrain vehicles (ATVs), Yamaha has established a stable earnings base by successfully catering to demand for these recreational products, mainly in North America. The company met a price-cutting offensive from some rivals in fiscal 2003, but was little affected thanks to its brand power and firm overall demand. While there is uncertainty in the outlook of the North American market, growing sales in Europe means the business is likely to remain a stable earnings source in the years to come.

Thanks to improved profitability in each business segment, Yamaha reported robust earnings for the six months to September 2004. It posted a 21 per cent surge in pre-tax profit to 43.8 billion yen ($417 million) on sales of 602.4 billion yen, up 13 per cent.

Even though the effect of credit securitisation has yet to be taken into account, the firm has substantially cut debt to 93.4 billion yen as of the end of September. It was able to do this in part because of its brisk earnings and because some of the company's convertible bonds were converted to stock. Its equity capital ratio has improved to 37.9 per cent.

Even though Yamaha relies for 86.4 per cent of its sales on foreign markets, the company now faces a substantially smaller currency risk than before with its increased overseas production.

Yamaha has made active capital investment in recent years to meet environmental rules and other government regulations related to its marine business. Capital spending will continue to be made for developing environment-friendly products and new engines, although such expenditure will likely have a limited burden on its finances.

In its motorcycle business in Asia, Yamaha is enjoying growing revenue thanks to expanding demand. But a close eye needs to be kept on the country risks facing the business, in particular, the possible adverse impact on future sales in Indonesia if the government there abolishes gasoline subsidies.

Source: Shohei Goto (a chief analyst at Rating and Investment Information Inc.)