Hyundai Motor cuts target price to 630,000 won: “Earnings recovery key to share-price rebound”

[Financial News] Shinhan Securities lowered its earnings forecasts for Hyundai Motor on the 12th and cut its target price by 19.2% to 630,000 won. It maintained its “Buy” rating. The brokerage believes that production disruptions and cost pressures will weigh on near-term earnings, but that higher profits next year and greater recognition of the value of its robotics and autonomous-driving businesses could drive a rebound in the share price.
Park Gwang-rae, a research fellow at Shinhan Securities, estimated that “Hyundai Motor’s revenue for the third quarter of this year will be 43.07 trillion won and operating profit 2.374 trillion won.” He forecast that “these figures would be down 7.8% and 6.4%, respectively, from the same period last year, with operating profit coming in 14.9% below the market estimate of 2.789 trillion won.”
Declining sales were cited as a major cause of weak earnings. Park estimated global wholesale sales in the third quarter at about 920,000 vehicles, down 11.5% from the same period last year. He put production disruptions caused by strikes at 50,000 to 55,000 vehicles. Sales in South Korea, North America and Europe fell 27.2%, 8.0% and 18.1%, respectively, adding to the burden of fixed costs, according to the analysis.
Hybrid vehicle sales totaled 167,000, up 3.4% from the same period last year but down 11.2% from the previous quarter. Accordingly, the benefits of expanding sales of higher-margin models are also expected to be limited.
Park said, “Raw material costs in the first half rose by about 600 billion won compared with the business plan, and a similar burden is expected in the second half.” He added, “However, lower U.S. tariffs and exchange-rate effects related to warranty costs could partly offset the cost burden.”
A recovery in sales was expected in the fourth quarter as production returns to normal. The forecast for global wholesale sales is 1.043 million vehicles, up 1.0% from the same period last year. The recovery is expected to be driven by the normalization of domestic production and increased deliveries of the new Elantra and Tucson. The share of hybrid vehicles in sales is forecast to rise from 18.1% in the third quarter to 19–20% in the fourth quarter.
Park forecast that “if next year’s earnings growth materializes and some of the value of new businesses such as robotics and autonomous driving is reflected in the share price, it could quickly rebound to the 400,000-won range.” He added, “If earnings improvement is delayed and the value of the robotics business fails to come into focus, the share price could continue to trade in a range.”

[email protected] Choi Du-seon Reporter