Business Expansion in Progress
The author is an analyst of NH Investment & Securities. He can be reached at soohong.cho@nhqv.com. -- Ed.
Mando’s ADAS division is displaying sound growth, and its global supply of chassis components is increasing. Mando’s cost-saving efforts in Korea and China bode well for its profitability. That said, we downgrade our investment rating to Hold, considering current valuations. Over the long term, we expect to see meaningful diversification of the company’s ADAS clients.
Business expansion in progress
While we raise our TP for Mando from W61,000 to W86,000, we downgrade our investment rating to Hold due to the recent share-price upsurge. Mando shares are currently trading at a premium to those of Hyundai Motor Group (HMG)’s three major affiliates on a NAV basis.
In calculating our TP, we apply a 2023F target P/B in order to reflect long-term asset value and ROE trends, and apply a 40% premium in light of the firm’s prospects for both a strengthening relationship with major client HMG and business expansion. Our new TP is equivalent to a 2021F target P/E of 18.7x and P/B of 2.5x.
We positively view that its product upgrades and client diversification into EV makers is progressing well. Going forward, at issue will be business opportunities and positioning for Mando in the fully-autonomous vehicle market. We expect that Mando’s ADAS division will diversify its client base away from HMG over the mid/long term.
Sales to set records in 2021, with OPM to return to 5% level
We estimate Mando’s 2021 sales at W6,248.2bn (+13.3% y-y) and OP at W325.9bn (+202.9% y-y; OPM of 5.2%). Its won-denominated sales growth has slowed on a fall in the dollar/won rate. That said, its sales should continue to rise at a sound pace, thanks to: 1) growth at the ADAS division; and 2) chassis shipment expansion amid a recovery in utilization rates at HMG’s plants and greater global output at North American EV makers. Mando is supplying chassis components for pick-up trucks for a North American EV maker, and plans to expand chassis component shipment for EV-exclusive platforms over the long term. In addition, cost savings from preemptive restructuring in Korea and China bode well for Mando’s profitability moving ahead.