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Suzuki shares race past Japanese rivals

Low exposure to North America, strong Indian sales keep investors interested

Production of the Swift, a compact car for European markets, was moved to Japan.

TOKYO -- Suzuki Motor shares are leaving bigger Japanese automakers in the dust, propelled by its independence from the flagging North American market as well as strong sales in India and Europe. 

The stock climbed as high as 2% on Thursday to 5,843 yen, marking back-to-back days of all-time highs as investors continue to reward positive April-June earnings released last week.

Suzuki shares have climbed 40% since the end of last year, while Nissan Motor, Toyota Motor and other big Japanese automakers have all fallen. The contrast emerged in May after Toyota predicted a profit decrease for fiscal 2017, and became starker this month when Suzuki reported a 72% jump in first-quarter consolidated net profit to 65.4 billion yen ($598 million), far outpacing the consensus forecast of 41.7 billion yen compiled by QUICK. 

"Institutional investors are actively including Suzuki when reshuffling automotive stocks in their portfolio," said one domestic fund manager. As of the end of July, the carmaker had a 4.9% weighting in the Nomura Japan Open fund, surpassing such holdings as telecom group NTT and air conditioner maker Daikin Industries to take the largest allocation in the Nomura Asset Management investment trust.

Behind Suzuki's rise is a changing global market. New-car sales in the U.S., which had driven the global market until last year, have dropped year on year for seven straight months through July. Rising factory-to-dealer incentives in America have eaten into earnings at Toyota, Nissan, Mazda Motor and others. Investors are also worried about the North American implications of protectionist policies touted by U.S. President Donald Trump.

Meanwhile, Suzuki's sales remain strong in India, where it holds the top market share. But the automaker's success is not confined to there. Akira Kishimoto, an analyst at JPMorgan Securities Japan, called it a "mega-positive surprise" that Suzuki's Japanese, Southeast Asian and two-wheeler businesses had all improved. 

Beyond Asia, the company has shifted production of its Swift compact car for European markets from Hungary to Shizuoka Prefecture, southwest of Tokyo. The move improved factory utilization there and contributed to greater domestic production of compacts, which are more profitable than the minivehicles known as "kei" cars in Japan.

Suzuki's April-June operating profit for Japan surged 77% on the year. Its two-wheeler business swung to 2 billion yen operating profit for the quarter on rising sales, recovering from a 600 million yen loss a year earlier.

But Suzuki still needs to find overseas rapid growth in emerging markets beyond India, such as China or Southeast Asian nations. Its shares no longer seem like a bargain now that they are trading at 17 times projected earnings, the highest among Japanese automakers. The question is how Suzuki can cultivate new emerging-market earnings sources while keeping up its brisk pace in India.

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