Largest Beneficiary of 3rd-generation Platform
The authors are analysts of Shinhan Investment Corp. They can be reached at yjjung86@shinhan.com and ik.jung@shinhan.com, respectively. -- Ed.
Hyundai Motor Group's third-generation platform, introduced three years ago, has benefited Kia the most with strong market response seen for all models built on the platform (K5, K7, Seltos, Sorento, and Carnival) and the sharing of parts helping to maximize cost savings. With the company focusing on a smaller number of brands and segments vs. Hyundai Motor, Kia has enjoyed larger operating leverage effect vs. its group affiliate.
Backed by record-high profitability and improved cash flow, Kia is now gearing up to expand into purpose-built vehicles (PBV). Aiming to take the lead in the market, Kia has set its PBV sales target at 1mn units for 2030.
1Q21 OP to exceed consensus at KRW1.29tr (+190.6% YoY)
For 1Q21, we now expect operating profit to come in at KRW1.29tr (+190.6% YoY) on sales of KRW15.9tr (+9.0% YoY), exceeding the KRW1.12tr market consensus by 15.1%. Sales in the US and India have been the main earnings drivers for the company since 2020. Retail sales in the US reached 160,000 units (+15.7% YoY) in 1Q21 with SUVs accounting for 65.7% (+3.9%p YoY) of the total. Improvement in sales mix was driven by strong demand for Seltos, Sorento, and Telluride. In India, retail sales rose to 48,000 units (+43.1% YoY) in 1Q21, with Sonet following the success of Seltos in securing a solid market foothold. In all, we believe Kia is benefiting strongly from the faster-than-expected recovery of industry demand.
Retain BUY and raise target price by 9% to KRW120,000
We retain BUY on Kia and raise our target price by 9.1% to KRW120,000, based on 2021F EPS of KRW10,232 and a target PER of 11.7x (average PER of nine global automakers). Kia's operating margin is projected at 7.3% for 2021, exceeding the average of nine global peers with the continued success of new models helping to maximize operating leverage effect. Despite exhibiting the strongest earnings momentum among global automakers, Kia's shares continue to trade at cheap valuations.