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Worries of Earnings Peaking Out versus Sustainable Growth



The analyst for NH Investment & Securities believes that Hyundai Motor Company (HMC) will experience stable growth in the second half of 2023, despite concerns of reaching a peak. This is due to global inventories sitting at only about 1.3 months, indicating room for further growth. The company's solid earnings and dividends are expected to provide support for its share price. The analyst predicts that HMC's valuations will recover as positive business results are confirmed in the second half of 2023.

The analyst maintains a Buy rating and a target price of W280,000 on HMC. Rather than seeing a peak-out, the analyst believes that HMC is on a path of strengthening sales volumes and operations. This is driven by improved product competitiveness and brand awareness. In the second half of 2023, the analyst expects HMC's operating profit margin (OPM) to stabilize in the high 8%-range. Increased profitability is expected to lead to future technology investment and greater shareholder return, enhancing the company's long-term earnings sustainability. HMC plans to pay a quarterly dividend of W1,500 per share, but the analyst expects the dividend per share for 2023 to exceed W10,000.

In the second quarter of 2023, HMC achieved sales of W42.2tn, a year-on-year increase of 17.4%, and an operating profit (OP) of W4.2tn, a year-on-year increase of 42.2%. The OPM reached 10.0%, exceeding expectations. Despite cost factors such as higher incentives and lower electric vehicle prices, HMC benefited from a rise in global utilization rate, an improved product mix, and favorable forex rates. These factors drove the increase in operating profit, with forex rates contributing W682bn and volume increase and mix improvement contributing W702bn. In terms of business breakdown, the OPM for the auto segment was 10.3% (adjusted), finance segment was 7.4%, and other segment was 12.4%. Although profitability in the financial domain continues to decline, sales and profitability remain healthier than feared. Hyundai Rotem and Hyundai Kefico also showed significant earnings improvement in other business segments.

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