Rating Action: Moody's affirms Toyota Industries' A2 ratings; revises outlook to stableGlobal Credit Research - 22 Mar 2021Tokyo, March 22, 2021 -- Moody's Japan K.K. has today affirmed Toyota Industries Corporation's (TICO) A2 issuer and senior unsecured ratings.At the same time, Moody's has changed the outlook to stable from negative.This action was primarily prompted by Moody's decision on 18 March 2021 to affirm the A1 long-term ratings of Toyota Motor Corporation (TMC), and to change the outlook on TMC to stable from negative.RATINGS RATIONALEMoody's affirmation of TICO's ratings and the outlook change to stable follow the same actions taken on TMC's ratings, because TICO's ratings incorporate an uplift to reflect its strong business relationship with TMC and the cross-shareholdings between the two companies. The one-notch differential between the companies' ratings reflects the lack of a guarantee from TMC to TICO. To maintain the rating differential, the level of uplift from TICO's A3-level standalone credit quality is compressed to one notch, although the companies' longstanding and strong ties could potentially lead to a two-notch uplift if TICO's standalone credit quality deteriorates in future.TICO's standalone credit quality reflects the company's leading market position as a manufacturer of forklift and car air-conditioning compressors. Moreover, TICO's ample liquidity with a large amount of cash and short-term deposits provides financial flexibility.Solid demand for its forklift business from the e-commerce and logistics sectors and the higher-margin aftersales parts and services has helped the company limit the pandemic-induced pressure on its operations and margins . Meanwhile, TICO's automotive business derives benefits from the fast global sales recovery of its key customer, TMC.TICO's success in controlling costs has helped maintain its profitability amid the coronavirus-led downturn. The company's EBITA margin for the 12 months ended December 2020 was 9.9%, slightly lower than around 10%-11% range over the past three years.As for environmental, social and governance (ESG) considerations, the ratings consider TICO's governance, with its strong relationship with TMC. This relationship is underpinned by overlapping business ties, with TMC contributing to about a tenth of TICO's sales as its main customer, and governance, considering the companies' cross-shareholdings and secondment of management. TMC is also TICO's largest shareholder with an approximate 25% stake, while TICO is in turn TMC's largest shareholder, with an 8% stake.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSTICO's stable outlook is currently aligned with that of TMC, because Moody's incorporates the one-notch uplift in TICO's ratings. The stable outlook also reflects Moody's expectation that TICO will maintain its competitive position in its core businesses, its cost discipline and its conservative financial policy in the next 12-18 months.TICO's ratings could be upgraded if TMC's ratings are upgraded, provided that TICO has a strong standalone credit quality.TICO's standalone credit quality would improve if the company solidifies its base of operations by broadening its product lines, diversifying its end markets from its core forklift and logistics solutions businesses, while demonstrating strong market shares; while sustaining improvement in its credit metrics, for example, EBITA margin above 13% range and debt/EBITDA (excluding captive finance operations) below 1.5x.An improvement in TICO's standalone credit quality could potentially weaken the company's current strong rating linkage with TMC, although this remains subject to Moody's evaluation of the two entities' relationship and relative positioning in terms of credit quality.Conversely, a downgrade is likely if (1) TMC's ratings are downgraded, (2) TICO's standalone credit quality weakens, or (3) TICO's strategic importance to TMC weakens.TICO's standalone credit quality would decline if the company fails to maintain its leading market share and competitive edge in its key businesses, or if it adopts an aggressive financial policy that weakens its profitability and leverage. For example, downward pressure on the standalone credit quality could emerge if TICO's EBITA margin falls below 8% or if its debt/EBITDA (excluding captive finance operations) stays above 3x.The principal methodology used in these ratings was Manufacturing Methodology (Japanese) published in March 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1216244. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Headquartered in Aichi, Japan, Toyota Industries Corporation is a leading manufacturer of lift trucks, car air-conditioning compressors and air-jet looms.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Ryohei Nishio Analyst Corporate Finance Group Moody's Japan K.K. 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