4Q22 Review: Earnings Surprise
The author is an analyst of NH Investment & Securities. He can be reached at dongyang.kim@nhqv.com. -- Ed.
Backed by accelerated digital transformation, mid/long-term growth prospects at Hyundai Autoever’s strategic businesses remain valid. The firm is beefing up its: 1) smart mobility capabilities by merging subsidiaries; and 2) status as a major HMG affiliate. Also positive are rising expectations for HMG governance restructuring.
OP to grow 16% y-y in 2023
Hyundai Autoever’s 2022 sales and OP grew 33% y-y and 48% y-y, respectively, thanks to: 1) IT outsourcing (ITO) manpower integration with affiliates; 2) cloud infrastructure expansion; 3) vehicle sales recovery and growing demand for advanced navigation systems; and 4) expanded vehicle SW application. The company presented conservative 2023 sales guidance of W2.88tn (+5% y-y), considering the uncertain external environment.
As its portion of non-captive sales is relatively low (12% on a cumulative basis through 3Q22), the firm’s earnings growth is more closely related to Hyundai Motor Group (HMG)’s vehicle sales and IT investment than external factors. Accordingly, we forecast 2023 sales of W3.03tn (+10% y-y) and OP of W165.0bn (+16% y-y) on the back of affiliates’ solid earnings and profitability improvement from expanded vehicle sales. Of note, the firm’s 2022 sales exceeded its guidance by 20%.
4Q22 review: Earnings surprise
Hyundai Autoever’s 4Q22 earnings significantly exceeded consensus, with sales of W834.2bn (+29% y-y) and OP of W58bn (+121% y-y).
Both the system integration (SI) division (sales of W288.0bn, +34% y-y) and ITO division (W396.8bn, +24% y-y) should continue to grow rapidly thanks to continued IT investment and cloud infrastructure expansion based on solid earnings at major affiliates. At the vehicle SW division (W149.5bn, +36% y-y), sales of navigation and automotive electronics SW rose as auto production grew. Hyundai Autoever posted record-high quarterly OP and OPM (6.9%, +2.8%p y-y) thanks to a higher vehicle SW sales portion (18%, +1%p y-y) and a turnaround in automotive electronics SW revenue.
In 1Q23, despite low-seasonality for IT services and rising labor costs on personnel recruitment, OP growth should remain high thanks to a hike in the sales portion of vehicle SW and the wide-spread adoption of Mobilgene (W30bn, +34% y-y).