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Earnings resilience plus new business expectations

2Q23 preview

OP of W387.3bn; port congestion likely led to temporary weakness in shipping

• For 2Q23, we forecast Hyundai Glovis to post revenue of W6.26tr (-8.8% YoY), dragged down by the logistics and shipping divisions.
- Logistics: We estimate revenue fell 14% YoY due to the continued deterioration of the forwarding market.
- Shipping: We estimate revenue declined 16% YoY, hurt by: 1) sluggish bulk market conditions; and 2) lower pure car/truck carrier (PCTC) utilization caused by port congestion issues.
- Distribution: We estimate revenue slipped 3% YoY. General distribution revenue likely declined, but we believe the CKD business held up well thanks to Hyundai Motor/Kia Corp.’s strong overseas production.

• We expect operating profit of W387.3bn, below the market consensus (W422.5bn).
- Shipping: We expect operating profit of W73.7bn (OP margin of 7.9%). Margins should be weaker than previously anticipated due to higher costs related to port congestion.
- Distribution: We expect operating profit of W158.2bn (OP margin of 4.8%). In the CKD business, currency effects likely subsided, but volume growth and lower costs likely had a positive impact.


Momentum

Profits to decline, but expectations of a higher bottom remain intact

• We adjusted down our 2023 revenue and operating profit estimates by 0.6% and 1.6%, respectively. We expect the impact of port congestion issues to last through 2H23.

• The company should be able to recoup some of the costs incurred as a result of congestion issues in 2Q23. We forecast 3Q23 shipping operating profit to recover to W86.5bn.

• Profits should continue to contract YoY. Still, we believe earnings will display solid downside support despite challenging macro conditions.

New businesses still in the very early stages, but future growth visibility is clear

• Management has recently commented on the development of the battery business (battery recycling and after-sales service).

• The company is believed to be weighing moves into waste battery recovery/distribution and even recycling (pretreatment).

• We see potential for further new business expansion, spurred by demand for shipping related to battery makers’ facilities and raw materials.


Recommendation

Maintain Buy and TP of W250,000

• Hyundai Glovis has rebounded roughly 30% from its recent low. Still, the stock is trading at a P/E of 7x on worries about market deterioration and profit contraction. We expect the rebound to continue on the back of new business expectations and signs of an earnings bottom.