Hyundai Glovis
The author is an analyst of NH Investment & Securities. He can be reached at ys.jung@nhqv.com -- Ed.
Glovis’s 1Q23 results met market consensus, with better-than-expected CKD volume, despite lower forwarding revenue and reduced high-margin PCC spot freight. The firm’s valuations remain at historic lows, but new business visibility should drive a valuation rebound.
Share price at bottom, waiting for tangible momentum for rebound
We maintain a Buy rating and TP of W223,000 on Hyundai Glovis, as our 2023 earnings revisions remain limited.
While it is disappointing to see a decline in high-margin cargo due to a reduced PCC fleet, the CKD division is likely to perform better than expected thanks to expanded production and strong sales at affiliates. With the shares trading at historical valuation lows and further earnings downgrades unlikely, the view that the stock is now at rock bottom should gain traction. However, more tangible results for commercialization or investment in new businesses (battery recycling, smart logistics, etc) are needed to expand valuations in the mid/long term.
Better-than-expected distribution revenue vs disappointing logistics and shipping revenue
Glovis booked 1Q23 sales of W6.3tn (+0.1% y-y) and OP of W406.6bn (-4.6% y-y; OPM 6.5%), meeting consensus. Despite a decline in forwarding revenue on reduced freight rates and a drop in high-margin unaffiliated finished vehicle transportation, overall sales remained sound thanks to favorable CKD volume.
By division, the logistics division posted sales of W2.15tn (-1% y-y) and OP of W168bn (+41% y-y). Profitability improved slightly due to higher freight rates on cost transfer and the expansion of automotive parts logistics at local subsidiaries despite lower forwarding revenue and profitability. The shipping division recorded sales of W1.01tn (-4% y-y) and OP of W105.6bn (-17.7% y-y). High-margin unaffiliated spot cargo decreased as: 1) PCC fleet in operation fell by 1 vessel q-q to 80; and 2) cargo shipping operation centered on affiliates and long-term contract clients. The distribution division registered sales of W3.14tn (+2% y-y) and OP of W132.9bn (-26% y-y). Despite unfavorable forex rates, revenue remained steady thanks to better-than-expected CKD volume amid increased production at clients. Profitability declined due to forex rate effects, but a turnaround is expected from 2Q23 given the recent weakening of the won.
Forwarding revenue is likely to decline through 2Q23, but OP should come in similar to the 1Q23 figure thanks to stabilizing profitability at the finished vehicle shipping business and rebounding margins at the distribution business.