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Pay attention to US market and upcoming events

2Q24 review: In-line results

For 2Q24, Hyundai Motor (HMC) posted operating profit of W4.3tr (+0.7% YoY, +20.3% QoQ), in line with the recently raised consensus (W4.2tr). Revenue came in at W45tr (+6.6% YoY, +10.7% QoQ), 2.3% above the consensus (W44tr). Operating profit saw positive YoY effects from FX (+W400bn), volume growth (+W153bn), mix/incentive improvements (+W95bn), and the finance business (+W136bn), but other factors had a negative impact (-W753bn; including -W435bn from higher provisions against warranties). Sales volume grew slightly (consolidated wholesale volume up 2.2% YoY), and the product/geographical mix improved (North America share up 3.4%p YoY, SUV/Genesis mix up 1.2%p YoY, and HEV mix up 2.5%p YoY). The firm reported double-digit margins for HEVs and low-single-digit margins for EVs.

Reiterate TP of W385,000; pay attention to US market and upcoming events

We maintain our Buy rating and target price of W385,000 for HMC. In deriving our target price, we applied a P/E of 7.6x to our 2024-25F average EPS of W50,672. Our target price corresponds to a P/B of 0.95x. (For reference, our 2024-25F average ROE of 13% implies 0.96x P/B.) Market conditions are normalizing (with incentives rising, pent-up demand being absorbed globally, and production recovering at rivals), and HMC is displaying strong earnings resilience (with 2Q24 results meeting the recently raised consensus); against this backdrop, we expect peak-growth worries to ease.

Following negative growth in June, retail sales in the US should recover from July, as CDK Global’s dealer management system (DMS) came back online at most dealerships on Jul. 2. That said, with DMS-linked third-party software only 90% restored as of Jul. 18, sales volume has likely been recovering at a gradual pace (starting from the second or third week of July).

The YoY slowdown in incentive growth looks very likely to continue into 2H24. Incentives fell 21% MoM in June (vs. industry avg. of -4%), aided by reductions for the Tucson (-26%), Ioniq 5 (-16%), and Santa Fe (-12%). The Tucson and the Santa Fe were major contributors to 2023 incentives, but new model/HEV launches have helped slow incentive growth; we think the new Tucson’s contribution to lower incentives has only begun. Of note, the company said it did not expect incentives to rise from current levels.

The company will communicate its short/long-term shareholder return policy and powertrain plant construction plans in the US during its Investor Day event (Aug. 28). It also aims to complete the listing of its Indian subsidiary by year-end. Furthermore, despite Trump-related concerns (potential tariff hikes, etc.), we think the company can: 1) mitigate risks by increasing local production after its new US plant is built; and 2) respond nimbly to market changes with its diverse portfolio.