Confidence in HMG’s Long-term Growth Potential Rising
The author is an analyst of NH Investment & Securities. He can be reached at soohong.cho@nhqv.com. -- Ed.
We expect share prices for HMG affiliates to continue uptrending over the long term on the back of: 1) attractive valuations; 2) earnings expansion on favorable new car effects; and 3) bolstered long-term growth prospects in line with an ongoing shift in business structure.
Issue regarding partnership with Apple
On Feb 8, Hyundai Motor Company (HMC), Kia Motors, and Hyundai Mobis announced that while they have been reviewing partnership requests from a number of companies regarding the development of self-driving EVs, no specific decisions have been made thus far.
In addition, they made clear that none of them are in discussion with Apple over a possible partnership for developing self-driving cars.
Following the announcement, short-term share price volatility expanded sharply for HMG companies, as recently, expectations for an HMG-Apple alliance pushed up their share prices strongly. That said, we believe HMG’s long-term share price uptrend remains intact. Even if cooperation with Apple fails to materialize, the recent event should help to cement HMG’s presence in the global market by highlighting the group’s efforts to nurture future technologies and enhance business competitiveness. We believe there are only a few global automakers that are qualified in terms of size and technological competitiveness to become a partner of major global tech companies like Apple.
Confidence in HMG’s long-term growth potential rising
With 2021 BPS for HMC, Kia, and Mobis estimated at a respective W270,000, W84,000, and W380,000, their current share prices are below or on a par with their book values. We believe that the firms are attractively valued, considering their long-term growth potential and earnings improvement momentum in line with the spread of a virtuous cycle.
In 2021, share performance should widely differ by auto/parts company, depending on their capabilities to respond to market changes. HMG is thoroughly preparing to transform its business structure through its Open Innovation initiative and the strengthening of its internal capabilities. We believe that the group will succeed in its business transformation, and its shares will re-rate once long-term corporate sustainability is confirmed.
We maintain our Positive rating on the auto/parts sector, and foresee that HMG’s share-price rally will sustain over the mid/long term. By company, we stick to our positive stance towards HMC and Kia, and take note of Mobis, which has strong potential for business expansion in the automotive electronics market. In addition, we take a long-term approach towards Hyundai Wia, which is shifting its focus from the ICE vehicle business to future-oriented businesses.