3Q22 Forecast: OP at KRW596.5bn (+30.4% YoY)
The author is an analyst of KB Securities. He can be reached at seongjin.kang@kbfg.com. -- Ed.
Maintain BUY but lower target price 12.9% to KRW270,000
We maintain BUY on Hyundai Mobis but lower our TP by 12.9% to KRW270,000. We revise down 2022E/2023E OP by 21.8%/21.3% to reflect lower-than-expected earnings in 1H22 and raise WACC by 1.8pp to reflect interest rate hikes. Our DCF-based TP (11.9% WACC, 3.3% TGR) implies 8.4x 12m fwd P/E, 0.61x P/B and has 38.8% upside (vs. Sept. 28 close).
3Q22 forecast: OP at KRW596.5bn (+30.4% YoY), above market consensus by 7.3%
We forecast 3Q22 OP at KRW596.5bn (+30.4% YoY, +47.9% QoQ), which is above the market consensus by 7.3%. For A/S, we see no one-off expenses incurred in 3Q22 and reduced logistics costs, resulting in 3Q22 A/S revenue of KRW2.5tn (+9.0% YoY) and OP of KRW525.5bn (+34.7% YoY). For Module & Parts, given Hyundai Motor Group vehicle shipments are expected to rise 15.2% YoY, 3Q22 Module & Parts revenue should come in at KRW9.1tn (+18.2% YoY) with OP of KRW71.0bn (turn to black YoY) and 0.8% OPM.
A/S, Module & Parts revenue expected to rise while costs decline; split-off to have little impact on corporate value
We expect earnings at both A/S and Module & Parts to start improving in 2H22. Revenue should turn around sharply while various costs decline (no more one-off expenses, reduced logistics costs). As long as core A/S and R&D functions remain at HQ, the split-off of the production arm (scheduled in November) should not significantly impact corporate value.
Sluggish auto sales, hike in raw material prices could force ratings downgrade
The following risk factors may force a ratings downgrade: 1) Potential sluggish sales of finished vehicles due to the global economic slowdown, resulting in a Module & Parts slump. 2) Potential margin deterioration due to another hike in raw material prices.