Defense Division Shored up by Stable Order Backlog
The author is an analyst of NH Investment & Securities. He can be reached at soohong.cho@nhqv.com. -- Ed.
At S&T Motiv, the defense division is being shored up by a stable order backlog, and the electrification business boasts strong growth potential. We expect the firm’s electrification sales portion to reach 51% in 2023. Even after the introduction of HMG’s E-GMP, long-term cooperation with HMG is to continue.
2023 electrification sales portion estimated at 51%
We maintain a Buy rating and TP of W71,000 on S&T Motiv in light of the firm’s mid/long-term growth outlook. Going forward, xEV market growth is to accelerate, backed by global automakers’ adoption of xEV exclusive platforms. Accordingly, the company’s electrification sales are expected to increase from W202.3bn in 2019 (20.7% of sales) to W655.8bn in 2023 (51.0%).
With HMG planning to introduce its E-GMP xEV exclusive platform in 2021, there is the possibility of a new vendor entering the scene in the near future. However, we believe that the long-term cooperative relationship between S&T Motiv and HMG will continue, noting that S&T Motiv’s strong cost competitiveness and Hyundai Mobis’s outsourcing policy are the basis of cooperation. Therefore, long-term benefits from expansion of the xEV market are expected to be more important than concerns over the possibility of new entrants to the HMG value chain. Meanwhile, earnings growth is also anticipated from global production expansion for GM’s Bolt (EV) in 2H20.
▶ 3Q20 review: Electrification sales hit quarterly high
S&T Motiv logged 3Q20 sales of W258.6bn (+7.8% y-y) and OP of W28.2bn (+3.8% y-y; OPM of 10.9%), exceeding both our estimates and consensus. The company’s electrification sales consist of HMG’s eco-friendly vehicle (EV/HEV) motors and GM Bolt (EV) drive units (EV drive module packages such as motors/reducers). In 3Q20, electrification sales reached W76.6bn (+65.7% y-y; 36.9% of sales), a quarterly high.
In 3Q20, pre-tax profit fell to about W23.7bn (-31.4% y-y), impacted by forex translation losses of roughly W4.3bn (vs recognition of about W7.5bn in forex-related gains in 3Q19) due to decline in the won-dollar exchange rate. Considering recent forex rate trends, 4Q20 forex losses are forecast at W7bn.