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. Auto 12,511 14,045 14,686 16,052 15,541 17,813 16,792 17,680 57,293 67,827 73,664 (Wbn) - Parent 8,415 9,560 8,847 9,944 9,326 10,813 9,656 10,554 36,766 40,350 41,826 - US 1,368 1,711 1,498 1,370 1,584 1,603 1,481 1,544 5,947 6,212 6,271 - Czech 614 704 781 910 885 974 1,062 1,129 3,009 4,049 5,615 - India 1,326 1,247 1,299 1,239 1,300 1,314 1,393 1,413 5,111 5,420 5,608 - Russia 3 207 508 552 597 3 1,865 3,295 - Turkey 182 298 356 361 289 392 292 334 1,197 1,307 1,409 - Others 605 525 1,905 2,225 1,950 2,209 2,356 2,109 5,259 8,623 9,641 Finance 1,665 1,619 1,560 1,675 1,873 1,927 1,898 1,885 6,520 7,583 8,461 Others (Rotem) 846 839 726 762 819 814 835 859 3,172 3,328 3,586 Total 15,021 16,503 16,972 18,489 18,233 20,554 19,525 20,425 66,985 78,738 85,712 ※ China (not 2,262 2,554 2,903 3,026 2,933 3,186 3,259 3,540 10,745 12,918 14,091 consolidated) Operating Profit (Wbn 1,256 1,426 1,290 1,371 1,827 2,246 1,731 2,204 5,342 8,008 8,791 Pretax profit (Wbn) 1,591 1,999 1,901 1,915 2,465 3,118 2,388 2,914 7,406 10,885 11,745 (Equity method (Wbn) 346 406 465 427 572 803 586 636 1,644 2,596 2,682 Net Profit (Wbn) 1,281 1,574 1,537 1,582 1,877 2,336 1,810 2,184 5,974 8,206 8,763 - Controlling share holders (Wbn) 1,152 1,439 1,404 1,446 1,752 2,197 1,679 2,044 5,441 7,672 8,202 - Non controlling share holders (Wbn) 129 134 133 136 125 139 131 139 532 534 561 OPM (%) 8.4 8.6 7.6 7.4 10.0 10.9 8.9 10.8 8.0 10.2 10.3 Pretax margin (%) 10.6 12.1 11.2 10.4 13.5 15.2 12.2 14.3 11.1 13.8 13.7 Net margin (controlling share holders,%) 7.7 8.7 8.3 7.8 9.6 10.7 8.6 10.0 8.1 9.7 9.6 Note: Earnings figures for 2010 and 2Q10~4Q10 are estimates and may differ from actual figures Source: HMC annual report, Daewoo Securities Research estimates

Daewoo Securities Research 3 July 19, 2011 Hyundai Motor

Hyundai Motor (005380 KS/Buy/TP: W330,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/10 12/11F 12/12F 12/13F (Wbn) 12/10 12/11F 12/12F 12/13F Revenues 112,590 78,738 85,712 88,913 Current Assets 40,600 47,368 50,643 53,798 Cost of Sales 86,060 61,029 66,546 68,667 Cash and Cash Equivalents 9,391 9,142 12,236 15,622 Gross Profit 26,530 17,708 19,166 20,245 AR & Other Receivables 8,780 4,577 4,607 4,651 SG&A Expenses 17,412 9,997 10,676 10,981 Inventories 11,525 5,263 5,391 5,113 Operating Profit (Adj) 9,118 7,712 8,489 9,265 Other Current Assets 2,258 1,228 1,251 1,254 Operating Profit 9,118 8,008 8,791 9,570 Non-Current Assets 77,478 56,324 60,616 64,987 Non-Operating Profit 1,334 3,174 3,255 3,580 Investments in Associates 4,920 12,280 14,962 17,969 Net Financial Income 351 37 -34 -99 Property, Plant and Equipment 28,878 18,611 18,884 18,972 Net Gain from Inv in Associates 1,100 2,425 2,683 3,007 Intangible Assets 3,948 2,634 2,623 2,616 Pretax Profit 10,452 10,885 11,745 12,844 Total Assets 118,078 103,692 111,259 118,785 Income Tax 2,469 2,679 2,982 3,269 Current Liabilities 45,593 33,478 34,773 35,716 Profit from Continuing Operations 7,983 8,206 8,763 9,575 AP & Other Payables 16,275 9,184 9,117 9,071 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 20,893 17,530 18,756 19,674 Net Profit 7,983 8,206 8,763 9,575 Other Current Liabilities 8,425 6,764 6,900 6,971 Controlling Interests 5,441 7,672 8,202 8,995 Non-Current Liabilities 35,749 28,790 26,020 22,807 Non-Controlling Interests 2,542 534 561 580 Long-Term Financial Liabilities 27,844 21,406 18,328 14,773 Total Comprehensive Profit 7,983 8,994 9,564 10,372 Other Non-Current Liabilities 7,255 6,859 7,146 7,458 Controlling Interests 5,441 8,344 8,886 9,675 Total Liabilities 81,342 62,268 60,793 58,523 Non-Controlling Interests 2,542 650 678 697 Controlling Interests 27,266 38,030 46,394 55,492 EBITDA 13,001 9,908 10,749 11,495 Capital Stock 1,489 1,489 1,489 1,489 FCF (Free Cash Flow) 701 42,251 6,097 7,355 Capital Surplus 5,961 3,901 3,901 3,901 EBITDA Margin (%) 11.6 12.6 12.5 12.9 Retained Earnings 19,742 32,487 40,166 48,585 Operating Profit Margin (%) 8.1 10.2 10.3 10.8 Non-Controlling Interests 9,470 3,394 4,072 4,769 Net Profit Margin (%) 4.8 9.7 9.6 10.1 Stockholders' Equity 36,736 41,424 50,466 60,262

Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/10 12/11F 12/12F 12/13F 12/10 12/11F 12/12F 12/13F Cash Flows from Op Activities 15,947 7,730 7,948 8,791 P/E (x) 9.1 8.8 8.2 7.5 Net Profit 7,983 8,206 8,763 9,575 P/CF (x) 5.3 6.8 6.5 6.0 Non-Cash Income and Expense 5,890 2,305 1,986 1,920 P/B (x) 1.8 1.8 1.5 1.2 Depreciation 2,987 1,548 1,543 1,525 EV/EBITDA (x) 6.4 6.4 5.5 4.7 Amortization 896 648 716 705 EPS (W) 19,060 26,875 28,730 31,508 Others -3,292 190 485 516 CFPS (W) 32,662 34,569 36,644 39,321 Chg in Working Capital 2,074 -443 52 568 BPS (W) 95,509 133,216 162,512 194,384 Chg in AR & Other Receivables -1,684 901 -30 -44 DPS (W) 1,500 1,900 2,100 2,300 Chg in Inventories 159 194 -128 278 Payout ratio (%) 7.6 6.8 7.0 7.0 Chg in AP & Other Payables 3,304 -655 -67 -46 Dividend Yield (%) 0.9 0.8 0.9 1.0 Income Tax Paid 0 -2,339 -2,853 -3,273 Revenue Growth (%) 23.1 -30.1 8.9 3.7 Cash Flows from Inv Activities -16,789 -3,911 -1,974 -1,723 EBITDA Growth (%) 41.3 -23.8 8.5 6.9 Chg in PP&E -3,705 -1,667 -1,822 -1,622 Operating Profit Growth (%) 62.2 -12.2 9.8 8.9 Chg in Intangible Assets -1,266 -693 -705 -698 EPS Growth (%) 83.0 41.0 6.9 9.7 Chg in Financial Assets -4,091 1,141 0 0 Accounts Receivable Turnover (x) 16.0 14.6 26.6 27.2 Others -7,726 -2,692 553 597 Inventory Turnover (x) 9.7 9.4 16.1 16.9 Cash Flows from Fin Activities 1,585 -881 -2,879 -3,681 Accounts Payable Turnover (x) 12.0 9.4 13.5 14.1 Chg in Financial Liabilities 2,591 -401 -865 -1,660 ROA (%) 7.2 7.4 8.2 8.3 Chg in Equity -453 0 0 0 ROE (%) 22.2 23.5 19.4 17.7 Dividends Paid -659 0 -522 -576 ROIC (%) 12.1 16.1 52.0 57.3 Others 106 -480 -504 -467 Liability to Equity Ratio (%) 221.4 150.3 120.5 97.1 Increase (Decrease) in Cash 731 -249 3,094 3,386 Current Ratio (%) 89.1 141.5 145.6 150.6 Beginning Balance 8,660 9,391 9,142 12,236 Net Debt to Equity Ratio (%) 83.6 6.4 -4.6 -13.8 Ending Balance 9,391 9,142 12,236 15,622 Interest Coverage Ratio (x) 9.6 15.2 17.3 19.9 Source: Company data, Daewoo Securities Research estimates

Daewoo Securities Research 4 July 19, 2011 Hyundai Motor

Important Disclosures & Disclaimers As of the publication date, Daewoo Securities Co., Ltd. has acted as a liquidity provider for equity-linked warrants backed by shares of Hyundai Motor as an underlying asset, and other than this, Daewoo Securities has no other special interests in the covered companies. As of the publication date, Daewoo Securities Co., Ltd. has acted as a liquidity provider for single stock futures backed by shares of Hyundai Motor as an underlying asset, and other than this, Daewoo Securities has no other special interests in the covered companies. As of the publication date, Daewoo Securities Co., Ltd. issued equity-linked warrants with Hyundai Motor as an underlying asset, and other than this, Daewoo Securities has no other special interests in the covered companies. Daewoo Securities Co., Ltd.`s analyst attended the IR meeting held by Hyundai Motor within recent one month. Expenses related to the meeting were covered by Hyundai Motor. Analyst of the subject company or member of the analyst's household does not have any financial interest in the securities of the subject company and the nature of the financial interest (including without limitation, whether it consists of any option, right, warrant, future, long or short position). This report reflects the sole opinion of the analyst without any external influences by third parties.

Buy Relative performance of 20% or greater (W) HyundaiMtr Stock Trading Buy Relative performance of 10% or greater, but with volatility 400,000 Ratings Hold Relative performance of -10% and 10% 300,000

Sell Relative performance of -10% 200,000

Overweight Fundamentals are favorable or improving 100,000 Industry Neutral Fundamentals are steady without any material changes Ratings 0 7/09 1/10 7/10 1/11 7/11 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.

This report has been provided by the research division of Daewoo Securities Co., Ltd. The stock ratings, target prices, estimates and overall viewpoints are from the research division of Daewoo Securities. Investors can access Daewoo SecuritiesÊ research directly through our website (www.bestez.com), FirstCall Research, Reuters, FnGuide, WiseFn, FactSet and Bloomberg (DWIR). This document was prepared by Daewoo Securities Co., Ltd. („Daewoo‰). Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith. The information has not been independently verified. Daewoo makes no guarantee, representation or warranty, express or implied, is made as to the fairness, accuracy or completeness of the information and opinions contained in this document. Daewoo accepts no responsibility or liability whatsoever for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. Information and opinions contained herein are subject to change without notice. This document is for information purposes only. It is not and should not be construed as an offer or solicitation of an offer to purchase or sell any securities or other financial instruments. This document may not be reproduced, further distributed or published in whole or in part for any purpose. Daewoo and/or other affiliate companies, their directors, representatives, or employees may have long or short positions in any of the securities or other financial instruments mentioned in this document or issuers described herein at any time and may purchase and/or sale, or offer to purchase and/or sale such securities or other financial instruments in the open market or otherwise, in each case either as principal or agent. This document is for distribution within the United Kingdom to persons authorized under the Financial Services Act 1986. Daewoo Securities is the sole provider of information contained in this document. DaewooÊs U.S. affiliate, Daewoo Securities (America) Inc., a member of FINRA/SIPC, is the sole distributor of this document within the U.S. This document may be distributed in the U.S. only to major U.S. institutional investors as defined in Rule 15a-6 of the U.S. Securities Exchange Act of 1934. Any U.S. recipient of this document wishing to effect any transactions in any securities discussed herein should contact and place orders with Daewoo Securities (America) Inc.

Daewoo Securities International Network

Daewoo Securities Co. Ltd. (Seoul) Daewoo Securities (Hong Kong) Ltd. Daewoo Securities (America) Inc. Head Office Two International Finance Centre 600 Lexington Avenue 31-3 Yeouido-dong, Yeengdeungpo-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

Daewoo Securities (Europe) Ltd. Tokyo Representative Office Beijing Representative Office Tower 42, Level 41 7th Floor, Yusen Building Suite 2602, Twin Towers (East) 25 Old Broad Street 2-3-2 Marunouchi, Chiyoda-ku B-12 Jianguomenwai Avenue London EC2N 1HQ Tokyo 100-0005 Chaoyang District, Beijing 100022 United Kingdom Japan China Tel: 44-20-7982-8016 Tel: 81-3- 3211-5511 Tel: 86-10-6567-9699

Shanghai Representative Office Ho Chi Minh Representative Office Unit 13, 28th Floor, Hang Seng Bank Tower Centec Tower 1000 Lujiazui Ring Road 72-74 Nguyen Thi Minh Khai Street Pudong New Area, Shanghai 200120 Ward 6, District 3, Ho Chi Minh City China Vietnam Tel: 86-21-5013-6392 Tel: 84-8-3910-6000

Daewoo Securities Research 5