Confidence Rising in Long-term Sustainability
The author is an analyst of NH Investment & Securities. He can be reached at soohong.cho@nhqv.com. -- Ed.
Following a share price surge at the beginning of the year, HMC has seen share price adjustment due to auto chip shortages and concerns over 1Q21 earnings. Backed by a successful launch of the Ioniq 5, however, the firm’s long-term growth prospects look to be strengthening. Given solid demand, short-term supply issues should have little impact on HMC’s long-term earnings outlook. Over the mid/long term, the company should enjoy share price revaluation.
Confidence rising in long-term sustainability: Mid/long-term share price revaluation expected
We maintain a Buy rating and TP of W330,000 on Hyundai Motor Company (HMC). Recently, the firm has experienced some share price decline due to concerns over 1Q21 results and supply-demand dynamics for automotive semiconductors. However, we believe that HMC will continue to see a mid/long-term share price revaluation this year, given the possibility of both a full-fledged improvement in intrinsic value and a successful business structure transition driven by the onset of a virtuous cycle on the global stage.
We estimate HMC’s 2021 global auto sales (ex-factory) at about 4.15mn units (14.4% y-y). In particular, expectations are in play this year towards the firm’s electrification strategy (following the successful introduction of its xEV exclusive platform) and the global launch of Genesis models. HMC’s 2021 sales and OP are projected at W114.3tn (+9.9% y-y) and W6.4tn (+167.0% y-y; OPM of 5.6%), respectively.
▶ 1Q21 preview: Business structure transition in progress
For 1Q21, HMC is expected to report sales of W27.7tn (+6.7% y-y) and OP of W1.4tn (+62.5% y-y; OPM of 5.2%). Excluding China, global utilization has proved better than expected. By region, negatives include the ongoing impact of Covid-19 in Europe and the weakening of EM (Brazil/Russia) currencies. However, strong domestic and US sales, which show high profitability, should offset profitability decline in other areas. In addition, affected by a rise in the end-of-quarter exchange rate, warranty liabilities rose q-q.
Last month saw the successful launch of the Ioniq 5, the first xEV model produced on the E-GMP xEV exclusive platform. Of note, in Korea, about 90% of the firm’s 2021 EV sales target was secured on the first day of pre-orders. Pre-order numbers are also proving favorable in Europe. Meanwhile, sales growth has remained stable for Genesis (GV80), a premium brand in the US market. In our view, both the firm’s transition to electric power and its high-end brand strategy are proceeding smoothly.