To Expand Subscription Services Sales
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. Also boding well are rising expectations towards likely governance restructuring at HMG.
To focus on vehicle S/W; to expand subscription services sales
Hyundai Autoever has unveiled its mid-term business goals—by 2026, it is targeting to achieve W3.6tn in sales (CAGR 12%), W1.5tn in cumulative investment, and a DPR of 27%. The recent merger of Hyundai MnSoft and Hyundai Autron will enable Hyundai Autoever to focus on vehicle S/W. Responding to smart mobility environment changes, Hyundai Autoever plans to expand its range of vehicle S/W applications, participate in setting up a Hyundai Motor Group (HMG) S/W integration development platform, and to beef up its cloud-linked services, navigation services, and precision map offerings. The firm’s goal is to widen its platform- and cloud-based subscription services sales portion to 23% by 2026.
Market interest has been rising towards likely governance restructuring at 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).
Adhering to a Buy rating, we raise our TP from W130,000 to W146,000, reflecting changes in both our applied multiple and EBITDA base year (EV/EBITDA multiple 15.0x → 13.5x; maintain 0% discount to average peer valuation multiple; 2021E EBITDA → 2022F EBITDA).
2Q21 review: Reflects merger costs
Hyundai Autoever’s 2Q21 results came in below our estimates, with the firm announcing sales of W514.7bn (+32% y-y) and OP of W33.6bn (+27% y-y). The SI division (2Q21 sales: W175.8bn, +7% y-y) and ITO division (W249.2bn, +10% y-y) both showed stable sales growth, but overall profitability was dampened slightly by higher SG&A expenses and vehicle S/W R&D manpower costs following a three-company merger (2Q21 OPM of 6.5%, -0.3%p y-y).
With the firm’s IT service business entering a low season, we forecast 3Q21 OP of W31.1bn (+39% y-y).