Market view on Hyundai Motor takes a turn after Q2 earning surprise

  • 2020-07-27

The market’s perception of Hyundai Motor Company has taken a turn, from considering the Korean automaker as a value stock to seeing it as a growth stock. The boost in the sales of high-priced cars has led to better-than-expected second-quarter earnings and the company’s aggressive investment into electric cars and hydrogen cars have caught the attention of investors.

During the second quarter, the company posted an operating profit of 590.3 billion won ($493 million) which is about 84.9% higher than the local brokerages’ estimated consensus of 319.2 billion won.

“There were talks in the market that Hyundai Motor may perform well, but the actual result was a complete surprise,” said a fund manager from an asset management firm.

Hyundai Motor’s second-quarter operating profit is about 52.3% less from the previous year’s 1.23 trillion won during the same period. However, the market isn’t bothered by this drop given that the second quarter’s earnings were expected to be low due to the global pandemic slowing down automobile sales worldwide. In fact, the company’s solid defense has put the Korean automaker in the spotlight with the market paying close attention to its upcoming performance.

“Hyundai Motor’s second-quarter sales volume dropped by 39.1% compared to the same period from the previous year. However, there was a 42.8% increase in contributed profits – about 7.73 million won –  for each vehicle sold,” said Sung-jin Kang, an analyst from KB Investment and Securities, explaining that the sharp increase in profit per automobile contributed to the second-quarter earnings.

With the exception of US-based Tesla, Hyundai Motor is one of the very few that posted surplus during the second quarter among major global automobile companies. According to FactSet, a financial information provider, Daimler, BMW, Volkswagen, GM, and Toyota among others are expected to have posted an operating loss during the second quarter.

According to financial information provider FnGuide, Hyundai Motor’s third-quarter earning profit is expected to be around 933.1 billion won, and 1.21 trillion won during the fourth quarter.

Hyundai Motor’s strategy was to focus on sales of high-priced cars. The company’s flagship sedan Grandeur sold 15,551 more units during the second quarter compared to the same period from the previous year. Also, shipment volume increased for the company’s high-end SUV models including GV80 and Palisade.

“Covid19 caused car sales to drop globally but Hyundai Motor defended well by concentrating on sales of high-priced cars that have high margins,” said Yong-jin Jung, an analyst at Shinhan Investment.

The company’s performance is expected to surge even more during the second half of the year amid concerns that sales performance may recover at a slow pace due to the global pandemic continuing to spread in Brazil, the US, and India.

“Hyundai Motor has been aggressively investing into electric cars and hydrogen cars backed by cash assets that amount to over 10 trillion won,” said Jung. He added, “Their investment into eco-friendly vehicles has not been fully reflected into the company’s share prices which means there is more room for growth.”

Hyundai Motor has long been snubbed in the market because its performance saw a downward trend for the past decade. The company posted an operating profit of 8.44 trillion won in 2012, which dropped to 2.42 trillion won in 2018. While global automobile sales flourished and reached a high peak selling 70.69 million automobiles worldwide in 2017, Hyundai Motor was not in the race because it was not able to keep up with the SUV-oriented market landscape.

Hyundai Motor’s share price hit its highest at 268,500 won in April 2012. The company’s share price stooped to a record low of 65,000 won as a result of the global pandemic in March, but it has bounced back to 123,500 won as of July 27. The company’s P/E ratio also dropped to a low 4.4x in March but has climbed up to stay within a comfortable 10x range.

The company has seen a 1.7% increase in its share price up to date and is expected to see an additional increase since the performance improvement is likely to continue throughout the second half of the year.

 

By Geunho Im

eigen@hankyung.com

<Edited by Danbee Lee>