Brisk New Wins for Eco-friendly Car Parts
The authors are analysts of Shinhan Investment Corp. They can be reached at yjjung86@shinhan.com and ik.jung@shinhan.com, respectively. -- Ed.
1Q21 operating profit in line at KRW94bn (+57.5% YoY)
Hanon Systems posted operating profit of KRW94bn (+57.5% YoY) on sales of KRW1.9tr (+11.6% YoY) for 1Q21, meeting the lowered market consensus (KRW97.7bn). YoY growth was seen in sales from new clients (Stellantis 20%, BMW 19%, Daimler 14%) and existing EV clients (Hyundai Motor/Kia 19%, Volkswagen 39%). The pace of profitability improvement slowed due to a decline in car sales volume at Ford (-8% YoY) and Renault-Nissan (-12% YoY) amid the global shortage of semiconductors. Overall sales of eco-friendly car parts jumped by 46.5% YoY to about KRW380bn in 1Q. The growth streak should continue in 2H thanks to rising sales of components for EV models built on Volkswagen’s MEB platform and Hyundai/Kia’s Electric-Global Modular Platform (E-GMP).
Brisk new wins for eco-friendly car parts
New business wins (new models) in the first quarter amounted to USD235mn, achieving 36% of the annual target (USD650mn). It is noteworthy that all new orders came from new clients (other than Hyundai Motor, Kia or Ford) and that the portion of eco-friendly car parts was at a record high of 97%. The COVID-19 outbreak in 2020 and global chip shortages in 2021 are causing a delay in the development of new car models. All original equipment manufacturers are focusing their capex capabilities on EVs. Hanon Systems’ competitiveness in the EV parts market has been confirmed with EV thermal management systems included in new wins in 1Q.
Total order backlog stands at USD41bn as of 1Q, of which eco-friendly car parts account for 40% (USD16bn) and new wins 22% (USD9bn).
Retain BUY for a target price of KRW19,500
We retain our BUY rating on Hanon Systems for a target price of KRW19,500, given: 1) faster-than-expected rise in the sales share of eco-friendly car parts; and 2) high visibility of growth in sales related to EV platforms.