3Q22E OP of KRW68.4bn (+18.7% YoY)
The author is an analyst of KB Securities. He can be reached at seongjin.kang@kbfg.com. -- Ed.
Revise down TP by 6.0% to KRW47,000; Maintain HOLD
We maintain HOLD on Mando and cut our target price by 6.0% to KRW47,000. We have revised down 2022E and 2023E OP by 12.5% and 21.8%, respectively, to reflect the decline in margins upon inflationary pressures since 1H22. We have also factored in a 1.3pp increase in WACC given higher interest rates. Derived using the DCF model (7.7% WACC, 1.7% TGR), our revised TP implies 12m fwd P/E of 9.8x and P/B of 0.96x, and offers potential upside of 6.0% (vs. Sep 28 closing price).
3Q22E OP of KRW68.4bn (+18.7% YoY), 2.1% below consensus
For 3Q22, we estimate OP at KRW68.4bn (+28.7% YoY, +49.8% QoQ), 2.1% below consensus and 28.3% lower than our previous forecast. We expect inflationary pressures to erode OPM by 2-3pp. Feedstock prices appear to have peaked in 2Q22, but complex automobile parts supply chains and inflationary pressures (i.e., lagging effect) should affect 3Q22 earnings. Thanks to the lifting of lockdown measures in China, however, 3Q22 OP should mark a significant QoQ improvement.
OP recovery to continue amid normalization of chip supply, but valuations already at fair levels given unstable macro conditions
We see OP recovery continuing through 2023 amid normalization of chip supply-demand dynamics. Share valuations (10.0x 12m fwd P/E) are already at fair levels, however, given unstable macro conditions, the possibility for supplier diversification by key clients, the absence of new revenue streams (i.e., after ADAS), and historic levels.
Upside risks to HOLD rating: (1) Diversification of ADAS client base; (2) Differentiated growth of China’s automobile market
Upside risks to our HOLD rating include: (1) the emergence of a new growth driver in the event of ADAS client base diversification; (2) rapid recovery of China’s automobile market, given Mando’s high exposure to China; and (3) continued differentiated growth of key EV clients.