Mirae Asset Securities logo

2Q24 preview: Solid earnings and multiple recovery

Raise TP by 10% to W385,000; still our top pick in autos

We maintain our Buy rating on Hyundai Motor (HMC) and raise our target price from W350,000 to W385,000 (36% upside), as we lifted our earnings estimates and changed our valuation base to 2024-25F average EPS (target P/E of 7.6x unchanged). Our target price implies a P/B of 1x. (For reference, our 2024-25F average ROE of 13.3% corresponds to a P/B of 0.96x.) Our target P/E is the stock’s average multiple in 2012-13, when the firm sustained solid earnings (following robust growth in the previous years).

Ahead of the release of 2Q24 earnings, we expect the stock to see positive momentum due to the potential for above-consensus results. A multiple recovery should also be supported by expectations for key upcoming events, including: 1) the CEO Investor Day event (August-September) and the potential announcement of shareholder return measures (buyback/retirement); 2) the listing of the Indian subsidiary (October); and 3) the operation of a new US production facility eligible for tax credits under the Inflation Reduction Act (IRA). Against this backdrop, we think the recent pullback (caused by reduced US sales stemming from the CDK Global cyberattack) offers a good entry point.

2Q24 preview: OP to top consensus by 9%

For 2Q24, we expect HMC to post operating profit of W4.48tr (+5.6% YoY), beating the consensus (W4.11tr) by 9%. We estimate revenue grew 4.3% YoY to W44.1tr and OP margin inched up 0.1%p YoY to 10.2%. Consolidated wholesale volume was 1.02mn units (+2.0% YoY), in line with the guidance. We believe solid earnings were supported by lower material costs as well as product/geographical mix improvements (with the mix of SUV and Genesis sales rising 3.4%p YoY and the share of the North America market rising 3.9%p YoY). Also, FX effects were favorable (USD/KRW rate rose 57 YoY, translating to a W300bn increase in operating profit) despite an increase in provisions for warranties stemming from higher end-of-period FX rates.

Increased incentives likely had a limited impact on bottom line. According to Autodata, HMC’s per-vehicle incentives roughly doubled YoY to around US$3,130 (+US$1,569 YoY), but the firm’s MoM incentive growth was slower than the industry level (difference vs. industry: -2.5%p in April, -3.1%p in May, and -17.4%p in June). We also note that incentive figures reflect government subsidies for BEV leases/rentals; as such, the growing mix of BEVs in HMC’s US sales (+1.2%p YoY to 8.2% in 2Q24) has likely widened the difference between total incentives and incentives actually paid by the firm.

Solid fundamentals in the US

Growth in incentives should continue to slow MoM. While the new Santa Fe helped reduce incentive pressures in March-June, the new Tucson should contribute to lower incentives from June. Also, HMC should qualify for IRA tax credits in 2H24. Backed by new model launches (especially HEVs/BEVs), HMC should gain share in the US market.