Hyundai Wia: profits will rebound from 2:22 a.m.
The author is an analyst at NH Investment & Securities. He can be contacted at [email protected] — Ed.
After starting last year, operations at Hyundai Wia’s Russian plant are expected to stabilize in 2H22. The company is expected to post improved earnings in 2H22, supported by both stabilizing global production at HMG and shrinking losses in the machinery division. From 2023, Hyundai Wia plans to supply cooling modules to vehicles manufactured to HMG’s E-GMP. Currently focused on ICE systems, the business structure of the company is expected to diversify thereafter.
Russia-related risks are already priced into the stock; medium/long-term expectations for new businesses are increasing
While holding on to a buy rating, we are lowering our TP for Hyundai Wia from 96,000W to 83,000W. We are adjusting our earnings forecast in light of a revision to HMG’s global sales estimates and a slow recovery in the profitability of the machinery division. Additionally, we are applying a 10% discount, given the geopolitical risks in Russia, where the company started operating an engine plant last year.
In 2022, the auto parts division is likely to register sales of 7.1 tn (+6.0% YoY) and an OP of 222.6 billion W (+50.4% YoY; OPM of 3 .1%). The machinery division is expected to post revenue of W820bn (+8.9% year-on-year) and operating losses of W24.6bn (RR), with an OPM of -3%. While machinery division operating losses are expected to decline, BEP is unlikely to be reached until 2023, later than expected.
From 2023, Hyundai Wia plans to provide cooling modules for vehicles manufactured to HMG’s E-GMP, and intends to eventually provide integrated thermal management systems. Currently focused on internal combustion engine (ICE) systems, the company’s business structure is expected to diversify in the future.
1Q22 preview: missing the consensus
We estimate 1Q22 consolidated sales at 1.8 tn of W (-1.9% YoY) and OPs at 27.2 billion W (-0.7% YoY; OPM of 1.5% ), both figures missing the consensus.
Despite lower global HMG sales, Hyundai Wia sales likely remained similar, helped by: 1) low base effects for the Russian engine plant; 2) favorable exchange rates; and 3) a recovery in sales in the machinery division. While the machinery sector is likely to have remained in the red, we believe the magnitude of its losses is diminishing.