Books 3Q22 Earnings Surprise
The author is an analyst of NH Investment & Securities. He can be reached at ys.jung@nhqv.com -- Ed.
Hyundai Glovis delivered a 3Q22 earnings surprise on favorable forex market conditions and one-off gains. While we positively view an anticipated mid/long-term rise in freight rates (spurred by contract renewals and rising finished vehicle volume), the firm’s growth momentum looks to be losing steam alongside a decline in forwarding rates and a reduction in PCC fleet. We lower our TP by 9% to W223,000.
Given slowing mid/long-term earnings growth, cut applied P/B multiple to 1.2x
Although adhering to a Buy rating, we lower our TP on Hyundai Glovis by 9% to W223,000. Reflecting won depreciation and higher mid/long-term shipping rates for finished vehicles, we upwardly adjust our 2022 and 2023 OP projections by 5.2% and 12.0%, respectively. But, taking into consideration a reduction in finished vehicle shipping fleet, decreasing forwarding rates, and higher risk free rates, we trim down our P/B multiple from 1.3x to 1.2x.
Positive factors in play for Hyundai Glovis’s mid/long-term earnings are: 1) an improving logistics picture for finished vehicles & parts thanks to higher auto production; and 2) climbing freight rates amid the process of renewing non-affiliated finished vehicle shipping contracts. However, we advise reining in mid/long-term profit expectations in light of: 1) a drop in operating fleet in response to a profitability-oriented business strategy; 2) a downtrend in forwarding rates; 3) likely margin deterioration alongside mid/long-term currency depreciation; and 4) the languid pace of the firm’s new business expansion efforts.
Books 3Q22 earnings surprise on favorable dollar/won rate, rising cargo volume, and one-off gains
Hyundai Glovis delivered an earnings surprise for 3Q22, posting consolidated sales of W7.01tn (+29.8% y-y) and OP of W478.1bn (+51.8% y-y; OPM of 6.8%) thanks to both a favorable dollar/won rate and one-off gains for the shipping division.
By division, 3Q22 earnings divided as follows. The logistics division showed sales of W2.47tn (+41% y-y) and OP of W158.2bn (+14% y-y), with earnings being driven by the favorable dollar/won rate and increased parts trade volume mainly at plants in the Americas and Europe. The shipping division registered sales of W1.24tn (+36% y-y) and OP of W112.6bn (+71% y-y), helped by fuel cost (BAF) settlements, the friendly forex market environment, and early shipbuilding compensation (W10bn) related to LNG carriers. Of note, fleet utilization rates fell slightly on a mix of higher cargo volume from China and lower cargo volume from Europe. The firm’s distribution business saw 3Q22 sales of W3.30tn (+20% y-y) and OP of W207.3bn (+87% y-y)—despite beneficial forex market conditions, the division’s OP growth was restrained q-q by a decrease in Russian-related cargo volume.
Looking at 4Q22, Hyundai Glovis’s parts shipments are set to expand alongside the ongoing rise in global finished car production. However, noting that the dollar/won rate has fallen since end-3Q22, we believe that OPM at the company’s distribution business will decline slightly (q-q).