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On Mar 13, we maintained our Neutral recommendation on Toyota Motor Corp. (TM - Analyst Report), despite the challenging scenario in the Chinese and European markets and continuous safety recall by the company, based on its improved fiscal 2013-third quarter earnings, effective cost reduction measures and dominant position in the global market of eco-friendly vehicles.

Why Maintained?

Toyota posted a 22.2% rise in earnings per share to ¥31.55 (39 cents) in the third quarter of fiscal 2013, ended Dec 31, 2013, from ¥25.81 in the same quarter last year. However, EPS missed the Zacks Consensus Estimate of $1.23.

Net income rose 23.4% to ¥99.91 billion ($1.23 billion) from ¥80.94 billion a year ago. The increase was attributable to lower provision for income taxes during the quarter. Revenues increased 9.3% to ¥5.32 trillion ($65.56 billion) on a 7.3% rise in unit sales to 2.11 million vehicles.

Following the release of the third quarter results, the Zacks Consensus Estimate for fiscal 2013 declined 12.8% to $6.26 per share. Meanwhile, the Zacks Consensus Estimate for fiscal 2014 declined 10.2% to $7.28 per share.

Toyota occupies the leading position in the hybrid cars market, offering Toyota and Lexus brands of vehicles as well as the Prius hybrids. Since 1997, the automaker sold more than 3.4 million hybrid vehicles until December last year. The company plans to launch about 21 gas-electric hybrid vehicles by 2015.

Toyota is also expanding its foothold in emerging markets to improve its sales figures. The automaker plans to launch 8 compact car models in the emerging markets of Brazil, China, India and Indonesia by 2015 in order to compete with the leading automakers in the market.

However, the past series of recalls have damaged Toyota’s reputation. In 2012, the company has been charged with a fine of $17.35 million from the Transportation Department of U.S due to late response regarding a defect in its vehicles.

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