Honda Motor 9-month Results Down; Backs FY Profit View, Lifts Sales Revenue Forecast

Honda reported a weaker nine-month performance with profit attributable to owners of parent of ¥465.44bn (-42.2% YoY) and operating profit of ¥591.51bn (-48.1% YoY) on sales of ¥15.98tn (-2.2% YoY). For the fiscal year to March 31, 2026, it kept attributable profit guidance at ¥300bn (¥75.05/share, -64.1% YoY) and operating profit at ¥550bn (-54.7% YoY) but raised sales revenue guidance to ¥21.10tn from ¥20.70tn. The results and downgraded profit outlook pressured shares, which closed down 2.2% at ¥1,670.50.

Analysis

Market structure: Honda's guidance cut (attributable profit ¥300bn, -64% y/y) but raised sales to ¥21.1tr signals margin pressure rather than volume collapse — losers are Honda-centric tier‑1 suppliers and legacy‑ICE inventory managers; winners are better‑positioned peers (Toyota TM/7203.T) and EV/battery players if market share shifts. Soft nine‑month operating profit (-48% y/y) implies pricing power erosion and cost inflation pass‑through limits; expect higher implied vol and widening credit spreads for auto supply credits over 3–12 months.

Risk assessment: Tail risks include a rapid yen appreciation (>5% in 1–3 months) that could erase several hundred billion yen in operating profit, large recalls impacting cash, or accelerated EV subsidies/regulation that re‑rate ICE assets; low‑probability/high‑impact events should be stress‑tested against a 30–50% swing in EPS. Immediate impact (days) is headline volatility and IV spikes; short term (weeks–months) driven by currency and Q4 sales prints; long term (years) dominated by EV transition and capex cycle.

Trade implications: Tactical short HMC exposure is warranted for 3–6 months; preferred execution is equity short or 3‑month put spread to cap cost, while implementing a relative‑value pair (long TM, short HMC) to isolate company‑specific weakness. Rotate 2–5% portfolio weight from ICE‑exposed suppliers into EV supply chain leaders (battery chemists, inverter makers) over 1–4 quarters.

Contrarian angles: The market may over‑penalize Honda given management held profit guidance and lifted sales — signaling conservatism and potential for upside if forex/costs normalize; consider convex long-date call exposure (12–18 months) sized small vs short‑term shorts. Historical parallels (post‑commodity spikes) show auto margins can rebound via price mix and cost reductions within 4–8 quarters; downside is capture if structural EV adoption accelerates faster than expected.

Key Decisions for Investors

• Establish a tactical 3% notional short position in HMC equity (ticker HMC) sized to portfolio volatility: target a 10–15% downside over 3–6 months; set a hard stop at +7% from entry and reassess on Q4 results or USD/JPY moves >3% within 30 days.
• Implement a pair trade: go long 3% TM (Toyota, TM or 7203.T) and short 3% HMC by equal market value to exploit relative operational resilience; hold 3–6 months and close if spread compresses by 8–10% or after Toyota/Honda earnings next quarter.
• Buy a 3‑month HMC put spread (sell 1,500 / buy 1,350 JP¥ strikes or nearest liquid strikes) sized at ~0.5–1% of portfolio to hedge downside while capping premium; roll or unwind if implied volatility drops below 25% or HMC shares fall >15%.
• Trim 2–4% exposure to Japanese tier‑1 suppliers with >25% revenue from Honda (examples: reassess positions in 6902.T DENSO and 7259.T Aisin) and redeploy into EV battery/value‑chain leaders (e.g., Panasonic 6752.T or listed battery chem plays) over 1–4 quarters.
• Monitor three catalysts closely and act: (1) USD/JPY moves >3% in 30 days (close or hedge equity shorts), (2) Honda’s Q4 sales/earnings release (within 60–90 days) — close shorts if guidance materially improves, (3) announced large recalls or subsidy/regulation changes (immediate re‑risking decision).