Merges with Hyundai MnSoft and Hyundai Autron
The author is an analyst of NH Investment & Securities. He can be reached at dongyang.kim@nhqv.com. -- Ed.
We view expectations towards mid/long term earnings growth at Hyundai Autoever’s strategic businesses as remaining valid in line with accelerating digital transformations at clients. A recent three-company merger is to beef up Hyundai Autoever’s smart mobility capabilities and reinforce its status as a major HMG affiliate.
Mergers with Hyundai MnSoft and Hyundai Autron to strengthen smart mobility capabilities
As of Apr 1, Hyundai Autoever has completed its mergers with affiliates Hyundai MnSoft and Hyundai Autron. The addition of Hyundai MnSoft’s navigation software and Hyundai Autron’s vehicle control and autonomous driving support platform should enable Hyundai Autoever to strengthen its vehicle interior/exterior smart mobility capabilities (which up until now have been focused on security control and cloud services) to encompass platform/chassis (vehicle control), self-driving, and infotainment systems. Open innovation is also expected to expand on the addition of W96.7bn of net cash from the acquired companies to existing net cash of W297.7bn.
Reflecting post-merger earnings estimates, net cash, change in number of shares, and valuation application multiples (EV/EBITDA multiple 11.6x→15.0x, share price movements at peers, and removal of discount (20→0%) to average multiple), we raise our TP from W76,000 to W130,000, adhering to a Buy rating.
Expectations intact towards HMG governance restructuring
After the inauguration of a new chairperson (Eui-sun Chung), market interest has been rising towards likely governance restructuring at Hyundai Motor Group (HMG). Although Hyundai Autoever is currently located at the bottom of the group’s governance structure, its status as a key affiliate of the group is to be reinforced by joint investment (10% stake) in the HMG Singapore Global Innovation Center (HMGICS) and the strengthening of its smart mobility capabilities (via the rec ent mergers).
Hyundai Autoever posted consolidated 1Q21 sales of W356.6bn (+8% y-y) and OP of W11.5bn (+1% y-y), missing our estimates. The SI division (1Q21 OP: W156.8bn, +7% y-y) and ITO division (W199.8bn, +10% y-y) both showed steady earnings growth, but overall profitability (OPM: 3.2%, -0.3%p y-y) was dampened slightly by a widened portion of merchandise sales and increased R&D expenditure at the ITO division
However, sales and margin growth are set to accelerate this quarter (2Q21E OP of W37.1bn, +40% y-y) in response to the inclusion of earnings from the recently merged affiliates