August 16, 2012 Company Report
Pyeong Hwa Automotive (043370 KQ) Auto parts
Daewoo Securities Co., Ltd. Steady growth to continue Michael Yun +822-768-4169 Maintain Buy rating but lower TP to W22,700 [email protected]
We maintain our Buy rating on Pyeong Hwa Automotive (PHA) but lower our 12- Young-ho Park month target price by 10.8% to W22,700 (from W25,400). We believe that, going +822-768-3033 forward, PHAÊs adjusted net profit (including equity-method gains) will continue to [email protected] increase by double digits on the back of solid growth at its overseas and domestic subsidiaries.
However, we are revising down our target price to reflect PHAÊs lower-than- estimated 2Q earnings. Also, we have trimmed our 2012 and 2013 EPS estimates Buy (Maintain) by 9.5% and 7.7%, respectively. Target Price (12M, W) 22,700 Our target price was derived by applying a target P/E of 9.5x (20% discount to Halla Share Price (08/14/12, W) 17,900 Climate ControlÊs target P/E) to our 2012 adjusted EPS estimate of W2,388. Expected Return (%) 26.8 EPS Growth (12F, %) -36.5 2Q Review: Adjusted NP fell short of our expectations Market EPS Growth (12F, %) 13.2 PHAÊs 2Q non-consolidated revenues and operating profit came in at W119bn and P/E (12F, x) 13.5 Market P/E (12F, x) 10.3 W3.1bn, respectively, on an OP margin of 2.6%. Pretax profit came in at W9.8bn KOSDAQ 480.74 on the back of W7.5bn in royalty fees (which are booked at the end of every 2Q Market Cap (Wbn) 376 and 4Q). Shares Outstanding (mn) 21 Meanwhile, PHAÊs equity-method gains reached W5.7bn, which was short of Avg Trading Volume (60D, '000) 110 2Q11Ês W7.1bn figure. This shortfall was due to an increase in costs at AST (a Avg Trading Value (60D, Wbn) 2 Dividend Yield (12F, %) 0.8 metal mold subsidiary) resulting from the use of air freight to resolve GM-related Free Float (%) 45.4 quality issues. We believe that this decline in equity-method gains was the main 52-Week Low (W) 12,300 reason why PHAÊs adjusted net profit came in short of our estimates. However, as 52-Week High (W) 21,400 of 2Q, the GM-related issues have been resolved. Beta (12M, Daily Rate of Return) 1.32 Price Return Volatility (12M Daily, %, SD) 3.4 2012 Adjusted NP to increase by 14.3% to W50.2bn Foreign Ownership (%) 10.5 Major Shareholder(s) We forecast PHAÊs 2H earnings to be stronger than its 1H results, as equity- Pyeong Hwa Clutch et al. (54.63%) method gains and royalty fees are expected to increase. In addition, PHA has Samsung Asset Management (6.34%) increased its stakes in its Slovakian and U.S. operations, which should bolster earnings. We forecast 2012 equity-method gains and royalty income to reach Price Performance W22.6bn (up 50.1%) and W16.7bn (up 11.3%), respectively. Thus, we believe that (%) 1M 6M 12M PHAÊs adjusted net profit will increase by 14.3% YoY to W50.2bn in 2012. We Absolute -6.3 4.7 7.8 project the companyÊs 2H net profit to reach W26.8bn, up 14.5% from 1H. Relative -14.2 7.0 -1.3 Key Business PHA manufactures vehicle door latch systems and modules. The company is a top-tier supplier to HMC and Kia. § Earnings & Valuation Metrics Share price FY Revenues OP OP Margin NP EPS EBITDAFCF ROE P/E P/B EV/EBITDA 140 KOSDAQ (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x) 130 120 12/10 376 17 4.6 25 1,165 32 -12 14.0 12.9 1.7 10.5 110 12/11 418 17 4.0 30 1,435 32 -9 14.3 10.9 1.4 10.8 100 90 12/12F 464 16 3.5 28 1,328 34 15 11.3 13.5 1.5 11.4 80 12/13F 497 21 4.2 30 1,409 40 12 10.8 12.7 1.3 9.6 70 60 12/14F 535 23 4.4 33 1,562 43 15 10.9 11.5 1.2 8.7 8/11 12/11 4/12 8/12 Notes: 2009~2010 figures are based on K-GAAP; 2011~2013F figures are based on non-consolidated K-IFRS Source: Company data, KDB Daewoo Securities Research estimates
Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. August 16, 2012 Pyeong Hwa Automotive
Tabel 1. 2Q12 Non-consolidated quarterly earnings (Wbn, %) 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12P Daewoo YoY,% QoQ,% Revenues 97.2 102.2 100.3 117.9 113.0 118.7 111.2 16.2 5.1 Operating profit 1.4 4.1 3.5 7.6 2.9 3.1 6.1 -23.8 8.3 Pretax profit 2.3 9.6 8.8 16.3 6.1 9.8 13.7 1.4 60.4 Net profit 1.6 7.4 6.6 14.5 4.8 7.5 10.6 1.6 55.9 OP margin 1.5 4.0 3.5 6.4 2.6 2.6 5.5 Pretax margin 2.4 9.4 8.7 13.8 5.4 8.2 12.3 Net margin 1.6 7.3 6.6 12.3 4.3 6.4 9.5 Source: Company data, KDB Daewoo Securities Research
Table 2. Adjusted (including equity method gains) net profit trend (Wbn, %) 1Q12 2Q12P 3Q12F 4Q12F 2012F 1Q13F 2Q13F 3Q13F 4Q13F 2013F 2014F Revenues 113.0 118.7 108.1 123.8 463.6 120.6 122.1 121.3 133.3 497.4 534.7 Operating profit 2.9 3.1 3.6 5.9 15.6 4.2 3.8 5.5 7.4 20.9 23.3 Pretax profit 11.3 15.5 11.5 19.4 57.7 9.9 19.2 14.4 22.2 65.8 72.5 Net profit 10.1 13.3 10.1 16.6 50.2 9.2 16.4 12.9 18.4 56.9 62.6 Equity method 5.2 5.7 6.3 5.3 22.6 6.5 7.1 7.6 6.0 27.3 29.9 OP margin 2.6 2.6 3.3 4.8 3.4 3.5 3.1 4.5 5.6 4.2 4.4 Pretax margin 10.0 13.1 10.6 15.7 12.5 8.2 15.8 11.9 16.6 13.2 13.6 Net margin 8.9 11.2 9.4 13.4 10.8 7.6 13.5 10.6 13.8 11.4 11.7 Source: Company data, KDB Daewoo Securities Research
Table 3. Earnings revisions (Wbn, W, %) Previous Revised % Change Reason 2012F 2013F 2012F 2013F 2012F 2013F Revenues 450.8 500.4 463.6 497.4 2.8 -0.6 - Reflected 2Q12 earnings Operating profit 21.6 26.7 15.6 20.9 -27.9 -21.8 - Lowered margins for some domestic Pretax profit 70.5 78.8 57.7 65.8 -18.1 -16.6 products Net profit 55.4 61.6 50.2 56.9 -9.5 -7.7 - Revised down equity method gains EPS 2,640 2,935 2,388 2,709 -9.5 -7.7 OP margin 4.8 5.3 3.4 4.2 Pretax margin 15.6 15.8 12.5 13.2 Net margin 12.3 12.3 10.8 11.4 Source: Company data, KDB Daewoo Securities Research
Figure 1. P/E band Figure 2. P/B band
(W) (W) 2.0x 24,000 12x 24,000 1.5x
9x 20,000 20,000
16,000 16,000 1.0x 6x
12,000 12,000
8,000 3x 8,000 0.5x
4,000 4,000
0 0 02 03 04 05 06 07 08 09 10 1112F 1213F 13 02 03 04 05 06 07 08 09 10 1112F 1213F 13
Source: Thomson Reuters, KDB Daewoo Securities Research Source: Thomson Reuters, KDB Daewoo Securities Research
KDB Daewoo Securities Research 2 August 16, 2012 Pyeong Hwa Automotive
Pyeong Hwa Automotive (043370 KQ/Buy/TP: W22,700)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F Revenues 418 464 497 535 Current Assets 173 166 176 189 Cost of Sales 365 407 436 469 Cash and Cash Equivalents 22 11 15 22 Gross Profit 53 57 61 66 AR & Other Receivables 106 109 112 116 SG&A Expenses 36 41 41 43 Inventories 29 31 32 33 Operating Profit (Adj) 17 16 21 23 Other Current Assets 14 16 17 17 Operating Profit 17 16 21 23 Non-Current Assets 213 240 265 292 Non-Operating Profit 20 20 18 19 Investments in Associates 5 5 5 5 Net Financial Income 1 0 1 1 Property, Plant and Equipment 93 98 104 108 Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 2 3 3 3 Pretax Profit 37 36 39 43 Total Assets 386 407 441 481 Income Tax 7 8 9 10 Current Liabilities 129 124 124 128 Profit from Continuing Operations 30 28 30 33 AP & Other Payables 80 81 82 86 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 27 24 23 23 Net Profit 30 28 30 33 Other Current Liabilities 22 19 19 20 Controlling Interests 30 28 30 33 Non-Current Liabilities 22 23 30 37 Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 0 0 0 0 Total Comprehensive Profit 47 28 30 33 Other Non-Current Liabilities 11 13 18 22 Controlling Interests 47 28 30 33 Total Liabilities 151 146 154 165 Non-Controlling Interests 0 0 0 0 Controlling Interests 235 260 287 316 EBITDA 32 34 40 43 Capital Stock 11 11 11 11 FCF (Free Cash Flow) -9 15 12 15 Capital Surplus 42 42 42 42 EBITDA Margin (%) 7.7 7.3 8.0 8.0 Retained Earnings 145 171 197 226 Operating Profit Margin (%) 4.0 3.5 4.2 4.4 Non-Controlling Interests 0 0 0 0 Net Profit Margin (%) 7.2 6.0 6.0 6.1 Stockholders' Equity 235 260 287 316
Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F Cash Flows from Op Activities 30 17 34 36 P/E (x) 10.9 13.5 12.7 11.5 Net Profit 30 28 30 33 P/CF (x) 7.3 8.3 7.8 7.2 Non-Cash Income and Expense 29 10 10 10 P/B (x) 1.4 1.5 1.3 1.2 Depreciation 15 17 18 19 EV/EBITDA (x) 10.8 11.4 9.6 8.7 Amortization 0 1 1 1 EPS (W) 1,435 1,328 1,409 1,562 Others -8 15 20 21 CFPS (W) 2,165 2,152 2,308 2,487 Chg in Working Capital -23 -13 4 3 BPS (W) 11,079 12,261 13,504 14,891 Chg in AR & Other Receivables -21 -2 -4 -4 DPS (W) 140 150 165 180 Chg in Inventories -6 -2 -2 -1 Payout ratio (%) 9.0 11.3 11.7 11.5 Chg in AP & Other Payables 13 1 1 4 Dividend Yield (%) 0.9 0.8 0.9 1.0 Income Tax Paid -6 -8 -9 -10 Revenue Growth (%) 11.1 11.0 7.3 7.5 Cash Flows from Inv Activities -34 -24 -26 -24 EBITDA Growth (%) 1.2 5.5 18.0 7.5 Chg in PP&E -26 -23 -25 -23 Operating Profit Growth (%) -3.1 -1.3 27.2 11.6 Chg in Intangible Assets -1 -1 -1 -1 EPS Growth (%) 23.2 -7.5 6.1 10.8 Chg in Financial Assets -1 -2 0 0 Accounts Receivable Turnover (x) 5.2 5.3 5.4 5.6 Others -5 1 0 0 Inventory Turnover (x) 15.7 15.5 15.8 16.3 Cash Flows from Fin Activities 9 -5 -5 -5 Accounts Payable Turnover (x) 8.6 8.7 8.4 8.8 Chg in Financial Liabilities 5 -4 -1 -1 ROA (%) 8.7 7.0 7.0 7.1 Chg in Equity 7 0 0 0 ROE (%) 14.3 11.3 10.8 10.9 Dividends Paid -3 -3 -3 -4 ROIC (%) 10.3 9.0 11.3 12.3 Others 0 -1 -1 -1 Liability to Equity Ratio (%) 64.3 56.2 53.7 52.1 Increase (Decrease) in Cash 5 -12 4 7 Current Ratio (%) 134.2 134.5 141.8 147.3 Beginning Balance 17 23 11 15 Net Debt to Equity Ratio (%) 1.4 5.1 3.0 0.1 Ending Balance 23 11 15 23 Interest Coverage Ratio (x) 16.4 15.0 19.5 23.5 Source: Company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research 3 August 16, 2012 Pyeong Hwa Automotive
Important Disclosures & Disclaimers Disclosures As of the publication date, Daewoo Securities Co., Ltd and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding.
Buy Relative performance of 20% or greater (W) PHA Stock Trading Buy Relative performance of 10% or greater, but with volatility 30,000 25,000 Ratings Hold Relative performance of -10% and 10% 20,000 Sell Relative performance of -10% 15,000 Overweight Fundamentals are favorable or improving 10,000 Industry 5,000 Neutral Fundamentals are steady without any material changes Ratings 0 8/10 2/11 8/11 2/12 8/12 Underweight Fundamentals are unfavorable or worsening * Ratings and Target Price History (Share price (----), Target price (----), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆)) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analystÊs estimate of future earnings. The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.
Analyst Certification The research analysts who prepared this report (the „Analysts‰) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Daewoo Securities Co., Ltd. policy prohibits its Analysts and members of their households from owning securities of any company in the AnalystÊs area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Daewoo Securities Co., Ltd. except as otherwise stated herein.
Disclaimers This report is published by Daewoo Securities Co., Ltd. („Daewoo‰), a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been independently verified and Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. If this report is an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof. Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Daewoo. Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur.
KDB Daewoo Securities Research 4 August 16, 2012 Pyeong Hwa Automotive
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Daewoo Securities Co. Ltd. (Seoul) Daewoo Securities (Hong Kong) Ltd. Daewoo Securities (America) Inc. Head Office Two International Finance Centre 600 Lexington Avenue 34-3 Yeouido-dong, Yeongdeungpo-gu Suites 2005-2012 Suite 301 Seoul 150-716 8 Finance Street, Central New York, NY 10022 Korea Hong Kong United States Tel: 82-2-768-3026 Tel: 85-2-2514-1304 Tel: 1-212-407-1022
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KDB Daewoo Securities Research 5