Russia-related Risks Already Baked into Share Price
The author is an analyst of NH Investment & Securities. He can be reached at soohong.cho@nhqv.com. -- Ed.
Having begun last year, operations at Hyundai Wia’s Russian plant are predicted to stabilize in 2H22. The company is likely to display earnings improvement in 2H22, backed by both global production stabilization at HMG and narrowing losses at the machinery division. Starting from 2023, Hyundai Wia plans to supply cooling modules to vehicles manufactured on HMG’s E-GMP. Currently centering upon ICE systems, the firm’s business structure is to diversify down the road.
Russia-related risks already baked into share price; mid/long-term expectations for new businesses are rising
While sticking to a Buy rating, we lower our TP for Hyundai Wia from W96,000 to W83,000. We adjust our earnings forecasts in light of a revision of HMG’s global sales estimates and a slow recovery in profitability at the machinery division. In addition, we apply a 10% discount, considering geopolitical risks in Russia, where the firm began operating an engine factory last year.
In 2022, the auto parts division will likely see sales of W7.1tn (+6.0% y-y) and OP of W222.6bn (+50.4% y-y; OPM of 3.1%). The machinery division should show sales of W820bn (+8.9% y-y) and operating losses of W24.6bn (RR), with an OPM of -3%. While operating losses at the machinery division are to shrink, BEP likely not be reached until 2023, later than previously anticipated.
Starting from 2023, Hyundai Wia plans to supply cooling modules for vehicles manufactured on HMG’s E-GMP, and it intends eventually to supply integrated thermal management systems. Currently centering upon internal combustion engine (ICE) systems, the firm’s business structure is to diversify going forward.
1Q22 preview: To miss consensus
We estimate 1Q22 consolidated sales of W1.8tn (-1.9% y-y) and OP of W27.2bn (-0.7% y-y; OPM of 1.5%), with both figures to miss consensus.
In spite of HMG’s reduced global sales, Hyundai Wia’s sales likely stayed similar y-y, aided by: 1) low-base effects for the Russian engine factory; 2) favorable forex rates; and 3) a top-line recovery at the machinery division. While the machinery arm likely remained in the red, we believe that the extent of its losses is shrinking.