Strong Marketability and High Demand
The author is an analyst of Shinhan Investment Corp. He can be reached at yjjung86@shinhan.com. -- Ed.
Is the worst of the auto chip shortage over?
Since Kia’s 1Q21 earnings release on April 23, the market’s attention has shifted to auto sales volume in May and June when domestic automakers might have seen the worst of the chip shortage. Kia is known to have decided a two-day shutdown for two of its plants in May (Sohari 2 plant in May 17-18, Georgia plant in May 27-28). The automaker continues to extend its solid performance from1Q21, while overseas rivals have cut monthly production by 30,000-40,000 units. Decent May sales volume will be confirmed in June. Led by Taiwan’s TSMC, chipmakers should be able to increase auto chip supply next month, potentially alleviating supply concerns that have plagued the market in1H21.
Strong marketability and demand
Kia sold 70,000 units (+121.3% YoY) in the US in April, grabbing the largest market share (4.64%) in its history. It is seeing strong sales in segments with weaker demand, such as the K3 and K5. The Telluride and Sorento in popular segments are finding it hard to keep up with demand. The used Telluride Strim model carries a price tag USD10,000 higher than the manufacturer's suggested retail price (MSRP) of USD38,540. Kia stands to enjoy high profits once supply recovers to normal levels.
Maintain BUY for a target price of KRW120,000
We retain our BUY rating on Kia for a target price of KRW120,000, based on 2021 EPS and a target PER of 11.1x (average PER of 13 global automakers). Many investors are worried that full-year earnings may be dampened by supply shortages that have exacerbated since the start of the year. We believe such concerns will be lifted once supply returns to normal in 3Q21. New Kia models continue to be in high demand and pent-up demand is solid.