Upward Pressure on Earnings Outlooks
The author is an analyst of KB Securities. He can be reached at seongjin.kang@kbfg.com. -- Ed.
3Q22 earnings beat on rapid revenue growth to have positive impact on stock performance
— HL Mando’s 3Q22 earnings beat the market consensus. Also, OPM exceeded expectations on estimate-beating revenue growth in major markets. Robust earnings should have a positive impact on stock performance.
3Q22 OP of KRW76.6bn above market consensus by 6.5%
— HL Mando reported 3Q22 OP of KRW76.6bn (+44.0% YoY, +67.6% QoQ), beating the market consensus by 6.5% and our estimate by 11.9%. OPM surprised on stronger-than-expected revenue in North America/China, which resulted in robust OP.
— 3Q22 OPM came in at 4.1% (+0.4pp YoY, +1.4pp QoQ), above the consensus and our estimate by 0.2pp and 0.4pp, respectively. This boosted OP by KRW7.0bn, comparable to the KRW8.2bn gap between our estimate and actual OP.
— OPM beat estimates on stronger-than-expected revenue. 3Q22 revenue came in at KRW1.869tn (+30.1% YoY, +11.3% QoQ), surpassing the consensus by 2.5% and our estimate by 2.3%. Given the correlation between revenue growth and OPM changes, the 0.4pp gap between our OPM estimate and actual OPM appears to be attributable to the 2.3% revenue gap.
— 3Q22 North America revenue came in at KRW473.8bn (+71.2% YoY, +20.6% QoQ), or 14.1% above our estimate. Hyundai Motor Group’s factory shipments in the U.S./Mexico expanded 57.4% YoY/23.3% YoY on normalized chip supply/demand. GM’s U.S. sales improved 24.3% YoY. Sales growth at EV customers also contributed to strong revenue growth in North America.
— 3Q22 China revenue came in at KRW508.8bn (+42.4% YoY, +55.8% QoQ), 4.9% above our estimate. Chinese auto market growth exceeded pre-pandemic levels in 3Q22 (+20.4% QoQ, +36.6% YoY). In addition, revenue at HL Mando’s major clients—EV manufacturers and Geely—improved sharply (sales volume +28.9% YoY).
— Revenue for the domestic market and others climbed 10.7% YoY and 120.8% YoY, respectively, but fell short of our estimates by 1.0% and 5.8%.
NP far above consensus on tangible asset disposal gains of KRW103.0bn
— For 3Q22, HL Mando recorded NP of KRW129.1bn (+469.5% YoY, +260.2% QoQ), beating the consensus by 98.1% (KRW63.9bn) and our estimate by 127.6% (KRW72.4bn). NP was boosted by tangible asset disposal gains of KRW103.0bn generated from real estate sales and leasebacks.
Estimate-beating operating leverage to fuel upward pressure on earnings outlooks
— 3Q22 results confirmed that HL Mando revenue is recovering faster than the market, resulting in stronger-than-expected operating leverage. These positives should provide upward pressure on earnings outlooks going forward.