Short-term Prospects Look Positive
The author is an analyst of NH Investment & Securities. He can be reached at soohong.cho@nhqv.com. -- Ed.
In the short term, prospects for Mando look positive thanks to Chinese auto market recovery. However, whether Mando can successfully grab business opportunities and establish a position for itself regarding full self-driving technologies is to be more important regarding its long-term valuations.
Factors with potential to enhance share price merit relative to industry peers
While lowering our rating on Mando to Hold, we raise our TP from W23,000 to W27,000. Excluding the effects of Covid-19, the firm’s customer diversification and product improvement efforts look to be progressing smoothly. In addition, in the short term, a recovery in the Chinese auto market looks positive for Mando, given the firm’s significant exposure to China.
However, we believe that currently favorable business conditions are already reflected in Mando’s share price, given its valuation premium relative to the three HMG players. In late March, HMG and Aptive established a self-driving (Level 4/5) JV, an entity that will likely serve as a competitor to Mando going forward in terms of full self-driving technologies (Level 4/5). Over the long term, Mando’s ability to respond to the arrival of full self-driving technologies holds the key to an additional valuation premium, in our view.
1Q20 review: Enjoys healthy customer diversification effects in North America
Mando logged 1Q20 sales of W1.3tn (-7.4% y-y) and OP of W18.5bn (-42.3% y-y; OPM of 1.4%). Although the impact of Covid-19 was unavoidable, strong earnings growth at the ADAS division and customer diversification in North America served as buffering factors.
In 1Q20, North America (US/Mexico) sales totaled W322.3bn (+18.9% y-y), showing robust growth and exceeding expectations despite the impact of Covid-19. We attribute its sound performance in North America to rising sales towards Ford and North American xEV players, in addition to sales towards HMG and GM (two major clients). In detail, North American xEV plays booked strong global sales in 1Q20. In addition, low-base effect stemming from the start of steering system supply for Ford pickup trucks in 3Q19 proved beneficial.
In 1Q20, sales in China fell to W184bn (-42.4% y-y). But, backed by strong domestic sales of luxury sedans and SUVs, ADAS sales continued to grow to W185.8bn (+10.5% y-y, 14.2% of sales).