MMTOF - Mitsubishi Motors Corporation (MMTOF) Q1 2023 Earnings Call Transcript

2023-07-25 07:34:08 ET

Mitsubishi Motors Corporation (MMTOF)

Q1 2023 Earnings Conference Call

July 25, 2023 02:15 AM ET

Company Participants

Kentaro Matsuoka - Representative Executive Officer, EVP & CFO

Takao Kato - CEO

Tatsuo Nakamura - Representative Executive Officer, EVP & Sales

Noriaki Hirakata - Executive Officer, Division General Manager, Corporate Strategy Management Division

Conference Call Participants

Arifumi Yoshida - Citi

Shinya Naruse - Okasana Securities

Kota Yuzawa - Goldman Sachs

Yoshitaka Ishiyama - Mizuho Securities

Masataka Kunugimoto - Nomura Securities

Eiji Hakomori - Daiwa Securities

Presentation

Operator

Good afternoon, everyone. Thank you very much for joining in our fiscal year 2023 First Quarter Financial Results Briefing. I would like to introduce today's speakers, Takao Kato, Representative Executive Officers, President and CEO; Kentaro Matsuoka, Representative Executive Officer, Executive Vice President, CFO.

In addition, we have Hiroshi Nagaoka, Executive Vice President and responsible for [indiscernible]; Tatsuo Nakamura, Executive Vice President, responsible for sales. Yoichi Yokozawa, Executive Officer, responsible for Corporate Strategy Management; and Susumu Noguchi, Corporate Officer, Division General Manager of Corporate Strategy Management Division for the Q&A session.

Today, we would like to present our result for fiscal year 2023 first quarter. And after that, I would like to take questions from the floor. The meeting was scheduled to end at 4:15 in the afternoon.

So first, Matsuoka, please.

Kentaro Matsuoka

Please turn to Page 3. This is Matsuoka speaking. Now I would like to start the presentation. So the COVID pandemic started in 2020 is almost brought under control and the world is now focusing on normalizing the economic and social activities. Production constraints caused by the shortages of semiconductors and other component in the process of being resolved and the automobile production is increasing in many regions.

On the other hand, the pace of recovery from the COVID pandemic varies in different regions with inflation and the rising of interest rates to control inflation slowing down the economy, deteriorating consumer confidence, and declining of purchasing power.

As shown in the slide, our fiscal year 2023, first quarter results improved significantly from the same period of the previous year, thanks to the improvement of sales quality and our net revenue strategy, which we have been promoting since FY 2021, and then also a tailwind coming from the ForEx. The net sales increased 20% year-on-year to JPY635.8 billion.

The operating profit increased 47% year-on-year to JPY45.2 million and the operating profit margin rose 1.3 points to 7.1% from 5.8% in the same period last year. The ordinary profit increased 25% to JPY61.8 billion, and the net income after taxes increased 24% year-on-year to JPY47.9 billion. Due to the inventory shortages in some regions and the changeover period of the product cycle, amid intensifying competition, the retail sales volume declined 10% year-on-year to 195,000 units.

Please turn to Page 4. This slide explains the factors behind year-on-year changes in operating profit for the first quarter of FY 2023. The volume and mix selling price showed a total favorable turnaround of JPY30.5 billion, mainly due to increased volume in ASEAN. North America and Europe, and mix selling price improvement from our net revenue strategy that we have been promoting.

Sales expenses decreased by JPY4.6 billion year-on-year as a result of strict management of incentives by monitoring the situation in each market and segments. The advertisement expenses will increase as planned mainly for new model launches. Procurement cost --procurement cost shipping cost decreased, the operating profit by JPY15.2 billion in total, due to the impact of raw material prices, which rose significantly from the second half of the previous fiscal year, product enhancement, and inflation as well as the negative impact on the shipping cost caused by the vessel shortages mainly on Oceania and European routes, although far more partially offset by procurement cost reduction. There were no significant changes in R&D expenses and other items that impact of the profit was minor.

Regarding the ForEx, while the depreciation of the yen against the U.S. dollars and euro had a positive impact. The deterioration of the Thai Baht, which is a cost currency for us, had a negative implication. So in total, the profit increased by JPY14.4 billion year-on-year, and the profit increased on a constant currency basis as well.

Please turn to Page 5. Next, I will explain the sales volume for the first quarter of FY 2023. Although, overall demand was generally firm, inventory replenishment was delayed due to supply shortages of some vehicles by the shortage of some parts, as well as vessel shortages in Oceania, the Middle East, Europe and other regions, resulting in 10% year-on-year decrease to 195,000 units.

The following pages show an overview of sales in our major regions. Please turn to Page 6. First, about the ASEAN region. TIV in the ASEAN countries seems to vary from country to country, except for the Philippines, which is showing a solid growth, even when good prices continue to increase at high pace. The overall recovery in demand is slow, although the degree of growth differs among the countries. Under this environment, retail sales volume was 59,000 units, down by about 9% year-on-year.

In Thailand, where we are in the changeover period of models, both volume and the market share decreased. In order to maximize the sale of a new Triton, which will be launched shortly, we are promoting to clear up the inventory of old Triton and preparing for the sale of from all aspects.

In Indonesia, TIV recovery was slow ad in the commercial vehicle segment, which is subject to stricter import quarters under the TPP. We lost the market share due to a delay in obtaining the import quota for TPP. And leveraging the new compact SUV, which will be launched in August, we aim to increase the overall market share.

In the Philippines, the high inflation is subsiding, and the country's central bank left interest rates unchanged in May. We secured a high market share as a result of increased sales of Mirage and other models as well as our focus on Xpander and Triton L300 as core models.

Regarding TIV in Vietnam. the deterioration on business sentiment is becoming more serious. Going forward, the government support and other measures will be initiated and automobile demand is expected to recover moderately. While closely monitoring these trends, we will strengthen our network to launch a new compact SUV and provide support such as training for sales and service staff for the launch.

In Malaysia, although, there were concerns about the reactionary decline from the economic stimulus packaging FY 2022, the sales have been stronger than expected. Sales of our mainstay product, the Xpander was strong, but sales of the Triton declined due in part to reluctance to buy the current model in anticipation of the new launch of the new model.

Please turn to Page 7. Next is about our domestic business. Although, the TIV in Japan did not reach the pre-COVID-19 level, it has exceeded the previous year's level, consecutively since September 2022, indicating that the market is still on the road to recovery. Our sales for both registered cars and kei cars exceeded the previous year's level. Our kei cars continue to be affected by the parts supply shortages, so we could not link those models to our retail sales performance in a full manner (ph).

Delica Mini went on sales on May 25, has maintained strong orders from pre-orders and has already exceeded 20,000 units far exceeding our expectation. Together with the Delica D:5, we will do our best to promote the outdoor image and Mitsubishi Motors-ness to expand synergetic sales and at the same time, we will deliver Delica Mini to customer, if we have been waiting for a long time at the earliest possible timing. We continue permeating and also establishing our branding to a POR (ph) values. In addition, we will strengthen and consolidate all functions to achieve our sales plan by enhancing management support for dealerships and training for sales staff.

Please turn to Page 8. Next is the situation of our North American business. TIV in the North American market rose by 17% year-on-year, due to the vehicle supply shortages improved by a recovery in production and an increase in fleet demand. In addition to the improved inventory level, we maintained strong sales momentum, especially in the Outlander and the Outlander PHEV. In particular, the new Outlander PHEV, which was launched in November last year in Canada has been well received and resulting in a record high sales volume.

Despite initial fears of recession, the consumer spending in the U.S. is stronger than expected. The sales environment is gradually normalizing as inventory tightness is easing and incentives are increasing. We will strive to expand the sales of the strong Outlander series while maintaining the quality of our sales activities.

And next, CEO, Kato will explain the FY 2023 forecast. Mr. Kato, please. Please turn to Page 10.

Takao Kato

So we recognize that the first quarter of FY 2023 get off to a solid start in a sales environment that was generally in line with our expectations. In particular, make sense and in price improvements have been accumulating, due to the promotion of our net revenue strategy. In addition, the Japanese yen has weakened against the U.S. dollars and other currencies more than we assumed at the beginning of the fiscal year.

Taking these factors into account, we have revised a full year forecast for FY 2023 as shown in this table. We have revised net sales from JPY2,700 billion to JPY72,780 billion. Operating profit from JPY150 billion to JPY170 billion. Ordinarily profit from JPY150 billion to JPY170 billion and net income from JPY100 billion to JPY110 billion. In the second quarter and beyond, we will continue to build a foundation for the next lead by promoting our net revenue strategy and steadily succeeding in launching new models, although, the macroeconomic environment is still highly uncertain as we had assumed at the beginning of that term.

Please turn to Page 11. This slide shows the factors behind the changes in operating profit forecast for FY 2023 from the previous fiscal year, we expect the total positive impact of JPY115.8 billion on volume mix and selling prices, mainly due to the impact of new models to be launched one after another through the second half of the fiscal year and the improvement of mix and selling prices by promoting the net revenue strategy despite supply constraints due to semiconductor and vessel, capacity shortages and so on.

As for selling expenses, we assume an increase in incentives as a result of changes in the competitive environment, we will also formally increase advertising expenses in preparation for the new model launches, which will lead to a sales increase.

Regarding procurement and shipping cost, we expect material cost hikes due to inflation and decrease in energy -- increase in energy and labor costs to proceed as forecasted at the beginning of the fiscal year. In addition, the increase in R&D expenses and labor and general expenses are forecasted to continue within our expected range at the moment. Regarding the impact from foreign exchange rate, we have factored in the exchange rates for the first quarter, and the negative impact is now JPY30.6 billion compared to the negative impact of JPY50.6 billion in our previous forecast.

Please turn to Page 12. Unit sales in the first quarter of FY 2023 were generally at the level incorporated in the plan at the beginning of the fiscal year. Retail sales volume declined year-over-year due to sluggish overall demand in ASEAN region, our main market and the shortage of vessel capacity. From the second quarter onward, new models will be launched one after another, around the world. In addition to the Delica Mini, which has been well received in the domestic market, the new Triton will be launched soon.

After that, we will finally launch a new compact SUV as a strategic vehicle for the ASEAN market. In Europe, we expected to see the full-fledged impact of new ASX and the COLT. In addition to the impact of new models, we expect the sales pace to gradually pick up as supply constraints ease and the market in ASEAN region recovers, which is expected in the second half of the year. Although, we need to continue to pay attention to the market trend, we would execute what we need to do as planned and do our utmost to achieve the sales plan of 917,000 units planned at the beginning of this fiscal year.

Please turn to Page 14. In FY 2023, we continue to focus on product renewal and the introduction of new models. This year, we have already launched three models as you can see here so far. In Japan, we launched the Delica Mini in May. Based on the concept of reliable and active super height wagon, the Delica Mini is a super height wagon that combines a spacious interior with a powerful driving performance and bears the name of Delica minivan.

Pre-orders have been accepted since January 2023, and the friendly and Delica like front face large-diameter, 15 inch tires, and special shock absorbers, feature exclusive equipment for the four-wheel drive model have been well received. The company has already received more than 20,000 orders, mainly from families and customers who want to enjoy outdoor activities. Together with Delica D:5, we will further promote the outdoor image and the Mitsubishi Motors-ness.

Next, in Europe, the sales of ASX began in March 2023. The test drive events held from January to February 2023 received a lot of positive feedback and orders for ASX were off to a good start, exceeding 9,000 units at the end of June. On the other hand, both production and logistics capacities are inadequate, and many customers are still waiting. We will do our utmost to accelerate production and shipment so that we can promptly deliver our products to our customers who have been waiting for all those cars for a long time.

And last June, we unveiled the new compact hatchback COLT for the European market. Following ASX, the new COLT, which will be supplied by Renault on an OEM basis, will adapt the Alliance's CMF-B platform and be relaunched as a five-door compact hatchback in European market for the first time in nine years. The new COLT will be produced at the Renault's Bursa plant in Turkey and will be available in Europe through Mitsubishi Motors sales networks from October this year.

As with ASX, the response to the announcement has exceeded our expectations, and we strongly believe this model will also increase MMC's sales in the second half of the year. In September, we plan to hold a test drive event for the press and gradually increase the presence in the market.

Please turn to Page 15. On July 26, we do unveil our fully remodeled one ton pickup truck, the new Triton in Thailand for the first time in the world. In addition to its excellent durability, robustness and off-road performance, the Triton has achieved the comfort and ride quality required for private use and has been well received in ASEAN, Oceania, Central And South Americas, the Middle East, Africa and other markets as a global strategic vehicle.

The new Triton now is in its sixth generation has a larger body size and powerful horizontal styling. The design concept is beast mode. In addition to the toughness and the strength required of a pickup truck the design concept expresses an imposing appearance that is both robust and agile, typical of Mitsubishi Motors. The world premiere of the new Triton a rugged and dependable pickup that makes you want to go on any adventure is scheduled to be streamed live on our special website. We hope you will join us.

Please turn to Page 16. We will have our World Premiere for the new compact SUV at the upcoming 30th Gaikindo, Indonesia International Auto Show to be held from August 10. The new compact SUV features our driving modes, including a wet mode, first time for Mitsubishi Motors to provide the safe, reliable and comfortable driving in severe weather and road conditions. This new compact SUV to be launched in our core market ASEAN region with a stylish and powerful full-fledged SUV design that offers both comfort and practicality in a compact body size with easy handling, spacious interior and a variety of storage spaces and safe and reliable driving performance in various weather and weather conditions, making everyday life exciting.

It is SUV that makes everyday life exciting. In addition, the minimum ground clearance the highest level in its class was secured to ensure safety even on rough road surfaces. In consideration of the way compact SUVs are used in ASEAN region. The new compact SUV will be launched sequentially in ASEAN countries starting from Indonesia. In the future, we plan to add electrified vehicles to the lineup and expand the model to regions outside of the ASEAN region. We hope to develop it into a mainstay, a model likely, we close of our MPV Xpander, which has become a global strategic vehicle from ASEAN's strategic model and is driving our sales.

While COVID 19 is finally on the verge of being resolved in 2023 after the three-year long pandemic. The speed of recovery has been slow, probably due to the effects of the global inflation and monetary tightening to control it and economic growth rates have slowed significantly, especially in emerging countries. And with such unstable business environment, we promoted our strategy to improve the sales quality or net revenue strategy and tackled every issue with the sincerity and with the tailwind of a foreign exchange rate, we were able to achieve record profits for the first quarter. We believe that the first year of our new mid-term business plan fell in 2025 and got off to a solid start.

Although, the unstable business environment is expected to continue for the foreseeable future, the new Triton and the new compact SUV will soon be launched in ASEAN countries, and the date will be delivered to build a solid foundation for growth in ASEAN region and boost our global sales volume as well. From this fiscal year, our company has entered into a new stage. We will achieve our goals for FY 2023, the first year of the midterm plan by taking on the challenges of further leaps and the bounds continuously towards the next era of growth as a United company.

Thank you very much for your attention.

Question-and-Answer Session

Operator

Now we would you like to take questions. [Operator Instructions] So the first person will be Mr. Yoshida. Mr. Yoshida, can you hear us from Citi?

Arifumi Yoshida

Thank you very much. And I could -- unmute myself. So the first question will be, for Triton and also [indiscernible] new compact SUV. So there's a lot of attentions from the market for those segments, for example. So the Triton will be introduced to Thailand ahead of other market, but I'm sure the economic situation like financing situation is not going to be easy. So how are you planning to compete with a new models like Triton? Because just focusing on the -- I'm sure you're focusing on existing customers and existing segments or targets as well, but we would like to know your confidence level with the new models?

And then the second question will be about the progress of Q1. So there was impact coming from the ForEx. So -- but if you could touch on other like, for example, volume or mix or price, if you could talk a little bit more on the items with other than the ForEx. And then I believe that the mix and also the pricing situation [indiscernible] worked well in your performance, especially for the -- I would like to know the breakdown JPY25.5 billion and how the mix -- product mix and pricing contributed to this result?

Tatsuo Nakamura

Thank you very much. So first question is about the how are we going to sell the [indiscernible] and Triton in Thailand? So this is Nakamura speaking. I'm in charge of sales. So as you pointed out, Thailand. especially in pick up market is quite slow right now. So not just us, but our competitors is also struggling, piling up these inventories and we're not exempted from that. So it's not -- the stress is not easy, but at the same time for preparing for new Triton. So we are working hard to clear up the inventory of the old like, current Triton. And some dealers actually already cleared up the inventory, and they are waiting for the new models to come in so they can start selling a new model and dealers as well. So some of the things that we have worked on with dealers for the past few years is to -- so refreshing the dealers.

So in other words, each area in Thailand, we have replaced some dealers with more like, strong dealers. And then last year, we invited them to look at the new, like, Triton, looking at the frame and also, like, a new suspension because this is a full model change. So our dealer partners are quite excited and with this new model and we have a very good mood already built up for selling New Triton. So I know the market situation is not easy, but we will prepare ourselves to make sure that the introduction of the Triton will be a success.

Kentaro Matsuoka

And this is Matsuoka speaking about the -- among the operating profit here. Your question is about the mix selling price and why we had a good impact on this area? So main reasons is, as you stated in your question, so rather than a volume, it is more to do with volume mix that really worked in our favor for the Q1 result. So among the volume, North America worked in a favor at the most and apart from North America, I may have to state, so the volume mix is basically is the big reason.

And this page shows the total volume and also the mix favorable result, so excluding North America, you can tell that -- apart from North America, mix and price – the selling price is the one that worked in our favor for non-North American markets.

Noriaki Hirakata

Mr. Sun, do you have additional comment?

Arifumi Yoshida

Thank you. So about the first question about the Thailand. So the market situation is -- so looking at the competitor's volume in June, looks like the tightening of the financial situation over there is getting more serious. So whether it is for good or for worse, but if you could comment a little bit more on the mark current market momentum in general. And also the second is again, about Q1. So what is the progress of your internal say, target for Q1? And if there are any changes from your original plan outside of the ForEx, then we I would like to know.

Takao Kato

So about the [indiscernible] again, about the first question. So as you pointed out, so the pickup market the stretch is not good. Although, the environment is tough, but interest rate, and now, we can kind of foresee what the selling will be, so we expect the situation will recover. But still, we cannot lower our guard, and I'm sure our competitors are struggling, but for us, we will continue to focus on the pickup truck and we will make sure to sell them.

And, also, so we had a pickup truck campaign last month and it is an internal target, but 6,000 units pre-order is the target and but we already have 7,000 customers showing an interest. So the market is situation in general is difficult, but I believe that we can have a good start for the launch of the new Triton, I believe.

Kentaro Matsuoka

And this is Matsuoka speaking. And so our progress status against our internal plan, I think that's what your question is. So, overall, we have a good impact coming from the ForEx situation. But when it comes to volume and also product mix so they kind of offset each other. So the volume, so there were certain regions where the target volume was not achieved, but still, as a performance wise, they achieved because of the ForEx. But if you look from a different perspective, we can -- we have, in some area, reallocated our efforts to certain models where we can get more benefits from the ForEx situation. And so -- but in overall, we believe that we are on the line with our target of the plant. Thank you very much.

Operator

Thank you very much, Mr. Yoshida. Let's move on from Okasan Securities. Naruse, please.

Shinya Naruse

My name is Naruse with Okasan Securities. Can you hear me?

Takao Kato

Yes?

Shinya Naruse

I have two questions from my side to. Starting with the first question about the first quarter. Year-over-year basis and according to your presentation earlier, North America's performance was better than you expected, and you are facing a very tough situation in ASEAN. So I want to know what's going on in North America market. I understand your [indiscernible] business increased. And lately, looking at your sales performance or sales environment that was mentioned as well, just like Thailand, I want to hear more about North America market including performance in the first quarter as well as the trend situation? That's my first question.

The second question is, in Q1 you have made a upward revision in your forecast due to FX. I understand that you have internally managing your business very much in detail, maybe you want to separate the reasons from FX and others. But I want to know the reasons behind the upward revision in your forecast and also that the balance sheet in the projection and so forth. I heard of that in all those numbers -- three months ago too. So I want to know your views on the, the forecast for this year too?

Takao Kato

To answer your first question about North America, I'm going to walk you through and, Naruse, thank you very much for your question. Concerning North American, as you said, things are going very well right now, especially Outlander and Outlander PHEV, we have those two models. last year because of the lack of vessels for sea freight and due to other reasons, there was no enough supply from our side to our customers.

In Canada, there was a lot of land transportation and some disruption in the ports and so forth, but we have been unable to supply sufficient volume to our customers, we have unable to fulfill customers' needs concerning supply of our cars. And in North America, we have U.S, Canada, Puerto Rico and also Mexico. And especially in the U.S, there's a strong demand for our fleet in a 40% year-over-year growth, for fleet business only compared to last. We don't want to give a large discount in order to get the free to business, that's not our intention. But we have the repurchase demand and customers want to buy those freight cars, then we have the same level of margin as a dealer's margin. So for fleet, for 90% supply has been achieved. It's not 100%, but we were able to achieve 90%.

Considering to Canada, like a Quebec and also British Columbia, there are two states and that there is a good subsidy or a good support from the government, and we have a strong demand for that in Mexico too with a new Outlander and expander too. Things are going well as well. So we have a good dealers, many dealers, good in Mexico. We have been able to find those good dealers. So we want to appeal our pricing and we want to shift from our strategy.

So for your second question, so the upward revision of FX was incorporated. The first point is ASEAN because of the new models, volume has increased. I mean, I think we can achieve volume increase with the new models and those have been incorporated into our plans. And looking at the current business situation, like, ASEAN, hike in interest rate, seems like it's now completed. As an example, a market like the Vietnam, economic stimulus program has been implemented. So we can expect good performance in the second half. That's one view.

On the other hand, in Vietnam, there is economic stimulus program being executed, but looking at the actual market situation, there are some uncertainties. So concerning ASEAN market, we need to closely watch how the market is going to develop going forward and economy in China too. We do have some concerns. So economy in China like ASEAN and also Australia could be impacted due to the slowdown in Chinese economy. Those aspects, we need to keep watching how the situation is going to evolve. But this time, we wanted to include the upward revision from FX fluctuation only into our forecast.

In North America, our sales momentum is extremely strong right now, like in the U.S. We don't need -- did not want -- maybe we did not have intention to increase the production volume, but the inner market is asking for more, say, the supply of volume and a new model compact SUV, those have been announced. No. We have been getting a very positive feedback from the market already. But still, we do have some uncertainties as we mentioned already, and we want to closely watch how the market is going to evolve that's why we only incorporated the revenue from FX impact only.

Concerning dividends, as long as we can keep achieving our midterm plan, targets, then we should have enough resources to pay more dividends. But if we have more resources to pay dividends, we want to increase the dividends as -- but that's not the direction because in the future, there will be a need to elect for the electrification. Like, introduction of electrified vehicles that requires a higher amount of investment. So we want to strike a balance and when we make a decision for future dividends.

Shinya Naruse

I see. Thank you very much. So just to double check with you, North America, you said there is a stronger momentum or strong demand, you have a lack of supply, you have strong orders from dealers. And from an MMC's perspective, was there any particular change in the market, but there's no particular change in the market?

Takao Kato

There is momentum and economic conditions are favorable. That situation has been continuing I think that's the reason. And in Canada, there still is a disruption in their logistics network. So there is a lack of their shipment or lack of supply and the customers are proactively placing orders. I think that's the case in Canada.

Shinya Naruse

Thank you.

Operator

Naruse, thank you very much. Now from Goldman Sachs Securities, Kota Yuzawa

Kota Yuzawa

So this is Yuzawa speaking from Goldman Sachs. Thank you. Thank you. So I have two questions. First one is again, so your achievement status against the fully forecast, especially for the sales expenses and then also procurement cost and shipping cost and others, if you could share with us the opportunities and then also risks because I think those will be the major expenses. So if you could elaborate on those three, that will be appreciated. And another one, since the China was mentioned, I know it might not directly have any implication on the operating profit, but I would like to receive an update on the Chinese business from the opportunity and risk perspective. So that's first.

And the second question is that, I know, this is Matsuoka-san as a CFO, first time attending a briefing session like this. So I would like to hear from Mr. Matsuoka about, his say declaration of determination being as being a CFO for the future.

Kentaro Matsuoka

This is Matsuoka speaking. So first about the achievements statements from the full year perspective, and I think your question is mainly on the expenses. So about the sales allocation, so about the sales, I think we are on the line of the target and then also for the incentives and also the advertisement cost we incorporated them sufficiently. And, also, for the advertisement cost is mainly for the new models, but those parts are fully incorporated into our full year assumption, and we are on the track for those.

And also about the procurement cost, so, of course, cost reduction activities in this area is ongoing, and we will continue to do so. But for the raw material, there's still a downside risk for the raw material cost at the moment. So compared to the end of March, like, the previous year, compared to that, the steel price is more or less stable, so -- but still materials are centered around steels that we cannot dispel the risks fully. So we do incorporate some of the risks coming from the steel as a part of the forecast and also other cost.

The vessel cost, especially for special shipping, we expect some still in the future. But for that one as much as possible, we will manage and make sure that we will ship the products to the regions where the profits can be secured. So even if the vessel cost or shipping cost increases, but that's in proportion to the sales increase. But apart from that, there's nothing specific that I need to mention at the moment for the expenses.

And then also another one is about the semiconductor part, so Matsuoka-son mentioned about the vessel shipping cost. But those cost or the risk is already a part of our plan, but we have about -- we believe the 50,000 units can be negatively affected because of those regions, but the semiconductor -- so semiconductor parts and those are the best availability are improving. But so I don't think the risk will become larger than what we already incorporated into this assumption. Because from time to time, we manage to secure the vessels out of the blue, things like that are happening. So I said the negative implication of 50,000 units, but maybe that could improve, so there's both sides to it. So I would like to add the additional comment.

Kota Yuzawa

And about the China business, so looking at the current environment in China, this duration is quite difficult that is understanding. And any cost related to the business in China, for example, like a loss. So we already expected a certain amount as a risk, and that is already a part of our assumption or the forecast. So if you could think in that manner, would appreciate that. Thank you.

Kentaro Matsuoka

And this is Matsuoka again. So my declaration of my determination, so we are an OEM rolling out business globally, and I assume this position as a CFO. And this is, so I know this is worth, like, doing, but at the same time, I feel the burden of coming from this position. And also, I need to always be aware of the corporate value. But at the same time, we are in the industry that is facing a drastic change. We need to determine the risks and we need to understand which risks to take and manage them well and then also to invest well.

And nine KPIs, which we presented as a part of the MTP. And, of course, I wasn't involved in the planning back then, but I believe that these nine KPIs are quite well designed, personally, I believe that. So we're -- or what action do we need to take so that, as a normal or the KPIs will improve. Like, we have a very good transparent metrics that we can use. So I will continue to monitor the nine KPIs under the current MTP, and then implement actions such as improving the sales price, which is already part of the initiatives are represented in them and under the MTP. And, also, I believe that having a dialogue with people like you continues to be important as well. So I appreciate your kind advice and feedback. Thank you very much.

Operator

Thank you very much, Mr. Yuzawa. Let’s move on. From Mizuho Securities is Ishiyama-sun. The floor is yours.

Yoshitaka Ishiyama

Hello. My name is Yoshitaka Ishiyama with Mizuho Securities. Can you hear me?

Kentaro Matsuoka

Yes. We can. Please go ahead.

Yoshitaka Ishiyama

Yes. I have two questions. Number one, ASEAN market conditions, I want to know more in detail. I understand you're going to launch new models, but about the entire market, when you closed your previous fiscal year, you have formulated your baseline and you did not make any change in your plan. So you know that the market situation in at the moment, is it better than you expected or worse than you expected? Would you please walk me through about the market situation?

The second question is, in your presentation, you talked about half -- in the second half. You're expecting market recovery. So what can you be more specific? What kind of environment you're expecting in Thailand and Vietnam? I understand it was covered in earlier questions and answers and would you please talk us through about the other markets as well?

Tatsuo Nakamura

Thank you for the questions. Ishiyama, my name is Nakamura in charge of sales. I want to give you the answers. Concerning ASEAN, as you pointed out, yeah, if the demand situation differs by market, which is in line with our expectation more or less, but there are some difference compared to our initial expectation, especially Vietnam. As you know, the demand was down by 40%, which is a very tough force. But the Vietnamese government from July in order to boost the demand for cars, they have started they implemented some support programs. So the demand for cars in Vietnam should recover step by step going forward.

On the other hand, as you see Malaysia, at the bottom, it says sales and service pack, a tax relief was implemented last year, and we were expecting a huge drop in our sales volume, but it did not decline that much. Of course, it was slightly decreased. But in the pickup truck, demand is very strong in Malaysia, so Xpander and Outlander, we want to keep selling those models strongly. In Thailand, the Philippines and Indonesia, those are our key markets. The Philippines, as you know, our performance is very strong. And the demand is strong and our market share because our teams are in a great effort, we have gained a lot of market share too.

So at the same time, Thailand and also Indonesia, we are facing some slowdown. So the decline from those two markets, that should be offset by the Philippines. That's our aim. But Thailand, the dip -- pickup truck demand is weak at the moment. So looking at the entire market, we cannot relax. We need to stay prudent. But we have a client model and we are setting down those existing inventories as we planned, so we are trying the special water on the dry land. We want to focus on those key models to push our sales more.

Indonesia situation is a little bit decomplex. Demand is the same level as last year. But the -- for the finished cars, we were not able to get the quarter for the import cars. We are struggling that broad Xpander, which has been localized already and also the SUVs with the five passengers by setting those models a strong day, we want to recover our sales performance. That's all.

Operator

Thank you very much, Mr. Ishiyama. Next from Nomura Securities, Mr. Kunugimoto (ph).

Masataka Kunugimoto

Can you hear me?

Takao Kato

Yes.

Masataka Kunugimoto

So first question is about the North America market. And then for the first quarter as well, so North American market accounts for 59% percent of the overall result. And you mentioned that the U.S. market is quite strong. So if the current ForEx situation continues -- and then for April to June, you already selling in accordance with your plan. So if the current ForEx continues then and for the remaining nine months, you'll be able to book a good result for the rest of the year. Is it fair for me to say that? If you could elaborate on that point more, including the ratio of the fleet business.

And the second question is about the business in China. So according to, like, a media, 27,100 associates in the GMMC offered, like, a retirement package. So if you could share some of the fact and also extra ordinary loss I guess, will be booked as soon as the number of people who accepted the package, then I think, and but that kind of risk or the loss amount is already a part of the business plan.

Tatsuo Nakamura

So first -- this is Nakamura again in charge of sales, and I would like to respond to your first question about the U.S. market or the North American market as you know, we are making a good progress in that region, and we believe that we can continue to maintain the momentum or, actually, I mean, we weren't deliberately trying to do this, but, for example, Mirage, and Attrage, so these models, we are also receiving a lot of offers but we haven't been able to provide enough supplies, but Outlander PHEV, in those areas, we'd like to make sure to do our sales activities.

And then if our current ForEx duration stays, then we may -- will probably will overtake. And about the fleet business, of course, the fleet business is in the scale of, like, several thousand units. But because of the IRA Outlander PHEV, so we would like to sell Outlander PHEV in the commercial list to a certain extent. But of course, the retail customers and also outside of America, a North American market as well who would like to have the Outlander PHEV as well. So we're not going to push ourselves too much and go beyond our means to sell. But still with the current situation, we believe that we'll be able to overachieve the budget.

Takao Kato

And for the North American market, so this is Kato speaking. I would like to add some comments. So if we maintain the current level, then we believe that we'll be able to have a favorable result at the end of the year, but at the same time, the interest rate is increasing. So we do need to take in about and that is slowing down the inflation rate. So in the future, if the U.S. market or the economy there will slow down at one point or not. Like, so we need to carefully watch, if there is a change in the speed of the economy and also about the Chinese business, about the package. You mentioned as well as the media reported, yes, we are doing that.

But this isn't, of course, not to let go of everybody. And, also, the scale of this package is the part of the plan. So if we're not expecting to see expense related to this package, increase from what you see what we plan right now. So this is in line with our original plan. Thank you.

Takao Kato

And the North American market, so [indiscernible] sum would like to talked about from the corporate strategy about the North America. So among the growth in the overall TIV, the demand for rental car is on the increase up until last year, no like, including ourselves, like an OEM had enough stock to allocate to the rental business, but especially for, like, a new Outlanders, like, we had no stock left for the rental business. But now that we have managed to stock up the inventory a little bit, and now that we can circulate some of the vehicles to the business like rental. So we have restarted that too.

So like in a comment, as I mentioned, the profitability for the rental business is the same as the dealer business. So the demand in terms of balance between demand and supply, the demand is still outweighing the supply amount. So for the rental as well, we have managed to enjoy the good profitability from that business as well. So that was additional information. Thank you.

Masataka Kunugimoto

And I would like to ask one follow-up question about reducing the number of workers in China and then reducing the amount of production capacity, but you'll continue to produce a similar models through the similar number of dealers. So about the future plan, so this is still under the negotiation discussion with our partner. So I would like to refrain from talking about the plan for the future. Thank you.

Operator

Thank you very much, Mr. Kunugimoto. So next question should be the last question, Hakomori with Daiwa Securities.

Eiji Hakomori

Hello. This is Hakomori speaking. I have two questions. Is that okay?

Takao Kato

That's fine.

Eiji Hakomori

So the first question is about Thailand, market share, your actual performance in the market. I understand that you have a net revenue strategy and you have been working over in the past several years. And I understand you are towards the end of life cycle for your models, but 2019 was the peak in Thailand and the market share has been coming down each year. And for pickup truck, it was slightly over 10%, but now down to 5% at the moment. So it seems like not only this year, but your market share has been declining each year. I understand that you are trying to, like, focus on and prioritize your customers. But do you have enough, like, competitive models and how much market share you can target to achieve? That's my first question.

The second question is looking at the Q1, the mix and also selling prices you have JPY25 billion more on year-over-year basis, JPY25.5 billion more. I understand there was a big increase. And I know how, -- I understand you're still in the way to achieve your final goal. But do you think there is enough growth rate or that, -- when this growth is going to slow down? Because year-over-year you have such a big growth rate. And I don't think you can maintain that level for a long time.

Takao Kato

So for the first question about Thailand, Nakamura is going to give you the answer.

Tatsuo Nakamura

Hakomori, thank you very much for your question. As you already pointed out, market share has been coming down since 2019. No, the thing -- there are things we can do during a short time and we can there's -- and there are things we can do in the midterm, and we have been working on both so far, but this time. No. We are launching new Triton for our product lineup plus maybe this was not announced in time on the end. But towards the end of the year, we want to launch expand the hybrid, so that we can get demand from electrification of the vehicles. So that's about our product.

Our sales capability, our sales reps, sales capabilities, and also the productivity, and also replacing our dealers. So we have been tackling those issues step by step in the past several years. Because we did not have a new model, we were not able to attain the tangible results. But we have replaced many of our dealers. And in October and November, we invited those local leaders to come to Japan and we presented new models and we motivated them to invest more.

In addition to that, on a marketing approach, in Bangkok, it's difficult to win because on the pickup market, we have a more demand in local areas in Thailand, the customers and those prospects, we are trying to gather the customer data. So how we can, like, attract those customers to repurchase Mitsubishi cars or switch from another brand to Mitsubishi. So we are conducting those marketing activities. And at same time, we are using digital tools to conduct our marketing activities.

In the past, it was difficult for us to achieve our good results. However, the service capability enhancement took place in the past several years, and we have been strengthening our marketing activities too. So we want to regain our market share in the coming years. That's all and that should be achievable. About the selling price hike, Kato want to talk answer that question.

Takao Kato

In the past and we have launched [indiscernible] the models. And there are two things we have done. The new Outlander, it gives a prestige image, and also it will accept it by the customers too. The cars can give you very luxurious or prestigious image. So we want to get to give new prices with the new models. We wanted to, revise our prices for the new models with the luxury image. And with the existing models, we are selling those already, but do we have adequate selling prices with those current models in each market, model by model. We are compared with our peers, model by model.

If our prices are lower than our peers, I mean, we have done such an analysis. If our price point is lower than our competitors, equivalent to model, then we have raised those prices. Our prices were relatively low compared to our competitors and we raised our selling prices for those models and for many models, but for some reasons, we do have opportunities for further price hikes, and we will take those actions accordingly. The next element is Mirage or in Japan, [indiscernible], those models are price point was required to inexpensive, and it still is. Like, a lower end, low price models, they want to reduce those models. So that we can place a greater focus on higher end models.

We want to shift our lineups towards higher end models. So that that's the action we are going to take. And because of that, we should be able to raise our selling prices we have a high expectation of that. To be more specific, Mirage, in some regions, we are not selling them of those anymore. To replace Miraj or a compact SUV, of course, in a compact SUV, the price point is higher than Miraj that's obvious, and we want to shift our focus towards that compact SUV. And also 7 passenger capacity, 3 roll SUVs, we are planning to launch those models in the future. In the past, Avera, Outlander Sports, we used to code those models under those names. Compared to those conventional models, we should be able to raise price points. And based on the finish of those products, we should be able to lift up our prices. So but through those measures, we want to be able to raise prices further.

Eiji Hakomori

Thank you very much.

Operator

Thank you very much. Now it's time for us to finish. We want to put an end to today's presentation and thank you very much for your attendance, particularly in your busy schedule.

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Mitsubishi Motors Corporation (MMTOF) Q1 2023 Earnings Call Transcript