Hyundai Motor (005380 KS) Auto

July 19, 2011 Company Report Hyundai Motor (005380 KS) Auto Quality 2Q11 earnings to pave the way for a strong 2012 Michael Yun +822-768-4169 [email protected] Maintain Buy rating with TP of W330,000 Young-Ho Park We maintain our Buy rating on Hyundai Motor (HMC) with a 12-month target price +822-768-4169 of W330,000. Our target price was derived by applying a target EV/EBITDA multiple [email protected] of 6.8x to HMCÊs consolidated EBITDA (including the companyÊs global factories, Michelle Choi financial subsidiaries, and other affiliates). We forecast HMCÊs global 2011 EBITDA +822-768-4169 at W10.8tr, with a net debt of W2.6tr and an investment value of W10.1tr. Our [email protected] target market cap for the company of W81.4tr is equivalent to a P/E of 10.6x, which we believe is fair. Also, on a market cap basis (value of common shares and preferred shares divided by net profit), HMCÊs shares are currently trading at a P/E of 7.5x. As such, we believe the auto giantÊs stock is undervalued. Buy (Maintain) 2Q11 Net profit to reach W2.2tr, setting a record once again Target Price (12M, W) 330,000 Share Price (11/07/01,W) 236,500 We forecast HMCÊs 2Q11 earnings under K-IFRS to exceed market expectations. Expected Return (%) 39.5 Revenues are estimated to have increased by 12.7% QoQ to W20.6tr, with global EPS Growth (11F, %) 41.0 retail sales volume reaching 1.05mn units (up 12.5% YoY; up 15.2% QoQ). Also, Market EPS Growth (11F, %) 13.2 the turnaround of Hyundai Capital America (HCA), which began in 4Q10, has P/E(11F, x) 8.8 started to contribute to HMCÊs consolidated revenue growth. HMCÊs 2Q11 Market P/E(11F, x) 10.8 KOSPI 2,130.48 operating profit and net profit attributable to controlling shareholders are estimated Market Cap (Wbn) 52,095 at W2.25tr and W2.2tr, respectively (both figures are up more than 20% QoQ). The Shares Outstanding (mn) 285 auto giantÊs 2Q11 OP margin is forecast to come in at 10.9%, thanks to profitability Avg Trading Volume (60D, '000) 1,039 enhancement in HMCÊs major overseas markets and rising contributions from the Avg Trading Value (60D, Wbn) 246 companyÊs high-margin finance business. Equity-method gains, which include a Dividend Yield (11F, %) 0.8 one-off gain from the IPO of Korea Aerospace Industries (KAI), increased to Free Float (%) 95.0 W803bn in 2Q11 (a W231bn increase from 1Q11). 52-Week Low 131,000 52-Week High 257,000 Solid earnings to continue, despite a slowdown in 3Q11 due to seasonality Beta (12M, Daily Rate of Return) 1.5 Price Return Volatility (12M Daily, %,SD) 2.4 3Q11 Revenues and net profit are forecast to come in at W19.5tr and W1.7tr, Foreign Ownership (%) 31.6 respectively, ending HMCÊs four consecutive quarters of positive growth. However, Major Shareholder(s) if we adjust for weak seasonality, rising raw material prices, and a stronger won, Hyundai Mobis et al. (25.97%) HMCÊs 3Q11 earnings should exceed its 1Q11 numbers (excluding one-off gains). NPS (5.95%) As such, we believe that a potential slowdown in 3Q11 should not be a major Price Performance concern. Going forward, we believe that HMCÊs improved products and (%) 1M 6M 12M competitiveness, along with its solid affiliate earnings, will enable the automaker to Absolute 4.9 4.7 22.2 continue its stable growth. Relative 0.0 -5.0 -20.6 § Earnings & Valuation Metrics Share price FY Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA 190 KOSPI (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (X) (X) (X) 12/09 91,463 5,620 6.1 2,974 10,416 9,203 7,760 14.6 11.6 1.6 7.5 140 12/10 112,590 9,118 8.1 5,441 19,060 13,001 701 22.2 9.1 1.8 6.4 12/11F 78,738 8,008 10.2 7,672 26,875 9,908 42,251 23.5 8.8 1.8 6.4 90 12/12F 85,712 8,791 10.3 8,202 28,730 10,749 6,097 19.4 8.2 1.5 5.5 12/13F 88,913 9,570 10.8 8,995 31,508 11,495 7,355 17.7 7.5 1.2 4.7 40 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests 7/10 11/10 3/11 7/11 Source: Company data, Daewoo Securities Research estimates Please read carefully important disclosures at the end of this report. July 19, 2011 Hyundai Motor Offsetting won appreciation with overseas ASP increases So far, 3Q11 appears to be following the trend of previous quarters, as we are seeing solid sales volume growth on sales mix improvement. In particular, HMCÊs U.S. operations are on a roll, thanks to: 1) historically low incentives and 2) solid overseas sales volume. Furthermore, HMCÊs overseas ASP has experienced surges. We believe that these factors should help the company offset recent won appreciation. Also, we forecast the proportion of sales volume from HMCÊs newly integrated platform to increase to 60% in 3Q11 (vs. 50% in 2Q11). This should also help offset won appreciation and higher raw material prices. Table 1. TP of W330,631 based on HMC's consolidated EV/EBITDA valuation (Wbn, W, x) 2011F EBITDA Parent 5,717 HMMA (US) 485 KMMG(US) 63 30% of Kia MotorsÊ Georgia Plant BHMC (China) 782 50% stakes in BHMC HMI (India) 412 HAOS(Turkey) 59 HMMC (Czech) 384 HMMR(Russia) 73 70% stakes in HMMR Georgia(Kia) 135 00% stakes in KMMG Others(overseas sales unit) 2,747 Global total 10,793 EV/EBITDA 6.8 15% premium to average multiple of Japanese Big 3, Ford, and VW EV(A) 73,882 Net debt(B) 2,637 Combined value of stakes at Kia Motors, Hyundai Card, Investments(C) 10,130 Hyundai Capital, HMC Securities, Hysco, HHI, HMM, HDC, Oilbank Total shareholders' equity value(D=A+B+C) 81,375 Implied PER of 10.6x Preferred stock (E) 8,544 12% of total market capitalization Common stock (D-E) 72,830 Per-share value of common stock 330,631 Note: HHI (Hyundai Heavy Industries), HMM (Hyundai Merchant Marine), HDC (Hyundai Development Company) Source: Daewoo Securities Research estimates HMC to maintain U.S. sales volume despite recovery of Japanese auto makers In 4Q11, we expect Japanese auto makers to start recovering from the March 11th earthquake. Nevertheless, HMC is well positioned in the U.S. with new car launches and improved brand image. Thus, HMCÊs U.S. sales volume should remain very solid despite the recovery of their Japanese peers. If Japanese auto makers return with a massive marketing campaign, HMC is also likely to follow suit. However, this rise should be offset by the reduction in promotions that accompanied the new car launches at the beginning of the year. Thus, we anticipate that HMCÊs U.S. operations will remain highly profitable in 2012 (when the Elantra and Accent are in their second year). Meanwhile, HMC is planning to launch the i40 wagon in 3Q11, and the all-new i30 and Avante coupe in 4Q11. In 2012, the all-new Santa Fe and YF Sonata, as well as the updated Genesis Coupe, are scheduled to be released. Thus, we are confident that the strengthening of HMCÊs product lineup will continue into 2012. Daewoo Securities Research 2 July 19, 2011 Hyundai Motor Table 2. Parent based and consolidated quarterly earnings forecasts for HMC (IFRS) 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11F 3Q11F 4Q11F 2010 2011F 2012F Sales volume (Â000) Domestic 168 153 155 183 167 177 164 179 659 687 701 Export 230 305 266 273 242 318 277 299 1,073 1,136 1,203 Total 398 458 421 456 409 496 441 478 1,732 1,824 1,904 ASP (W,000) Domestic 22,097 22,689 21,650 20,504 22,938 23,708 23,032 23,731 21,687 23,366 23,565 Export 15,563 15,809 16,577 17,104 17,366 16,432 16,660 16,503 16,275 16,705 16,525 (US$) 13,602 13,590 13,983 15,099 15,500 15,168 15,791 15,868 14,072 15,544 16,201 Total 18,322 18,109 18,447 18,470 19,640 19,035 19,030 19,212 18,335 19,216 19,117 Sales (Wbn) Domestic 4,031 3,804 3,635 4,128 4,111 4,550 4,100 4,595 15,598 17,355 17,882 Export 4,384 5,756 5,213 5,816 5,216 6,263 5,556 5,959 21,168 22,995 23,944 Total 8,415 9,560 8,847 9,944 9,326 10,813 9,656 10,554 36,766 40,350 41,826 Operating Profit (Wbn) 755 890 761 935 952 1,243 906 1,236 3,341 4,337 4,360 OPM (%) 9.0 9.3 8.6 9.4 10.2 11.5 9.4 11.7 9.1 10.7 10.4 Global retail (Â000) 826 936 947 973 914 1,053 1,002 1,083 3,682 4,052 4,576 ASP (W,000) 15,273 15,817 15,907 15,990 16,402 16,528 16,356 16,509 15,758 16,452 16,439 Consolidated Rev.

Load more