The author is an analyst for NH Investment & Securities. He can be reached at soohong.cho@nhqv.com -- Ed.
Sales growth to slow at HMG in 2024
In 2024, an earnings growth slowdown is largely expected for HMG. The company has set a global wholesale target of 7.443mn units (+1.9% y-y) and domestic sales target of 1.234mn units (-7.1% y-y), reflecting more conservative assumptions than our projections. Overseas sales are forecast to grow solidly to 6.209mn units (+3.9% y-y). HMC has managed to secure enough production capacity amid low inventory levels (global inventory of about 1.5 months).
In 2024, sales growth slowdown looks inevitable despite likely auto demand recovery
Although a recovery trend is likely to sustain in 2024 for global auto demand, sales growth slowdown looks inevitable. We note that accumulated stand-by demand was mostly met in 2023 thanks to an easing of supply disruptions, although there is some room left to reach pre-pandemic demand levels. Also, there are concerns over EV demand (stemming from fierce competition and investment plan delays) and mounting macroeconomic volatility (including from interest rate and forex rate fluctuations).
Global competitive landscape to be reshaped
The global EV market is looking to move into a transition period after an early adoption phase. In the process of a global demand growth slowdown and intensifying competition, the global competitive landscape is likely to be reshaped. We expect the market to become polarized, with only a few automakers with cost competitiveness and liquidity to hold dominant positions. Those who weather the storm and prove their strong competitiveness should be able to escape the value trap, though it will likely take time.
Maintain Neutral rating on automotive sector
Noting slowing global automotive sales and intensifying competition in the EV market, it appears inevitable that the sector will see a weakening of earnings momentum this year. That said, we believe that peak-out concerns have already been well reflected in sector valuations. Finished automakers (HMC, KIA) with enhanced earnings fundamentals and abundant liquidity (investment/competition) remain attractive in terms of valuations. We also maintain a positive view towards Hyundai Wia—the firm is undergoing business structure transformation through new businesses (heat management/RnA).