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Higher quarter-end FX rate had a negative impact; 2025 OP margin forecast at 11%

Short-term volatility may increase, but downside support remains firm

While shares of Kia Corp. (Kia) may experience short-term volatility due to tariff concerns, any sharp decrease seems unlikely given the stock’s current P/E (3.9x) and dividend yield (6.5%; DPS of W6,500; record date of Mar. 19), as well as the W700bn buyback program planned for this year (to be split between 1H and 2H). 2025 guidance also looks positive, considering that it is based on a conservative FX assumption. If a 25% tariff on Mexico is imposed and fully passed on to customers, we estimate the negative impact on annual earnings could reach W900bn. However, the potential impact on global competitors is even more significant, and it is unclear whether the tariff will actually be implemented. Potential upside catalysts include: 1) stronger BEV sales in Europe; and 2) the CEO Investor Day set for early April.

4Q24 review: Positive ASP/mix effects vs. negative impact from quarter-end FX rate and incentives

For 4Q24, Kia posted revenue of W27.1tr (+11.6% YoY; above the consensus of W26.7tr), operating profit of W2.72tr (+10.2% YoY; below the consensus of W2.81tr), and an OP margin of 10%. Operating profit saw positive YoY effects from FX (+W388bn), sales volume growth (+W363bn), pricing (+W136bn), and mix improvements (+W163bn), but other factors had a negative impact (-W490bn from higher incentives, -W140bn from higher raw material costs, and -W170bn from other expenses). Warranty provisions rose by W180bn YoY to W840bn, largely due to a higher quarter-end USD/KRW rate (W420bn impact). Total provisions stand at approximately W8tr, including W4tr in FX-related reserves held in Korea (revalued each quarter). Despite the negative impact from incentive payments in North America and the higher quarter-end FX rate, ASP and mix remained supportive; consolidated ASP climbed 5.9% YoY to W37.4mn, and the combined profit contribution of ASP and mix remained strong (+W370bn in 1Q24, +W171bn in 2Q24, +W333bn in 3Q24, +W299bn in 4Q24).

2025 guidance: Conservative FX assumption and robust US retail sales outlook

For 2025, the company guided revenue at W112.5tr (+4.7% YoY), operating profit at W12.4tr (-2.5%), and OP margin at 11% (-0.8%p YoY). It also guided wholesale volume at 3.22mn units (+4.1% YoY) and consolidated volume at 3.08mn units (+4.6% YoY). By region, the company guided wholesale growth at +1.9% in North America, +2.4% in Europe, +1.8% in Korea, and +22.4% in India. The guidance was based on a USD/KRW rate assumption of 1,320, which we view as conservative. Of note, every increase of 10 in the USD/KRW rate boosts annual operating profit by approximately W200bn; this suggests that favorable FX alone could offset potential tariffs (not reflected in the firm’s guidance). In the US market, the firm forecasts wholesale volume to increase 0.7% YoY and retail sales volume to jump 5.8% YoY; considering the consensus estimate of US retail sales volume growth (+1-3% YoY), it appears that Kia expects to gain share in the US despite an absence of new model releases (other than the new Sportage). Although incentive payments are likely to rise further (in line with the industry average), we think the impact will be partly offset by the firm’s competitive pricing, attractive offerings across segments, and a rise in HEV sales mix.