2Q21 Preview: OP to Beat Market Consensus by 21.0%
The author is an analyst of KB Securities. He can be reached at seongjin.kang@kbfg.com. -- Ed.
Maintain BUY; raise target price to KRW120,000 (+9.1%)
We maintain BUY and raise our TP by 9.1% to KRW120,000 given upward revisions of 4.9%/4.2% to 2021E/2022E OP and a downward revision of WACC (7.62%→7.28%) due to change in financial structure. Our DCF-derived TP (7.28% WACC; 1.0% TGR) implies 11.2x 12m fwd P/E, 1.37x P/B and has 33.6% potential upside (vs. Jun 22 closing price).
2Q21 preview: OP of KRW1.5tn (+952.8% YoY) to beat market consensus by 21.0%
For 2Q21, we revise up our OP estimate by 8.7% (or KRW122.1bn) to KRW1.53tn (+952.8% YoY), which is above the market consensus by 21.0% (or KRW265.8bn). Apr-May unit sales came in above our estimate by 30,554 units (+6.8%). Given this, we increased 2Q21E unit sales by 34,529 (+5.0%), translating into a KRW227.7bn boost to 2Q21E OP.
Current memory chip shortage unlikely to have further impact on earnings estimates
For 2021, we forecast OP at KRW5.2tn (+151.7% YoY), which stands above the market consensus by 7.4% (or KRW360.1bn). In terms of memory chips, we do not believe the current shortage will have any further impact on 2021E OP; Apr-May total shipments were in line with our expectation (450,485 estimate vs. 450,462 actual). Unit sales of certain models have been brisk (even when considering production issues), pushing inventory levels to under a month; low inventory is unlikely to hurt annual performance because it is based on growing sales. Rivals are suffering production problems, so less competition should provide some perks (e.g., reduced purchase incentives).
Risks: Rising feedstock prices, KRW appreciation
Factors that may affect our BUY rating are: (1) rising feedstock prices undermining contribution margin of vehicles and (2) KRW appreciation forcing a drop in OP.