Individual Investors Who Bought 1.5 Trillion Won Worth of Hyundai Motor Shares Feel 'Uneasy'

Announcement of Provision Performance Reflection
Q3 Deficit Inevitable... Target Price Also Downgraded

[Asia Economy Reporter Minji Lee] As Hyundai Motor Company forecasted a loss for the third quarter, the mood in the securities industry, which had expected an earnings surprise, changed drastically. Recently, individual investors who have purchased over 1.5 trillion KRW worth of Hyundai Motor shares are now worried about a sharp decline in the stock price.

According to the Korea Exchange on the 20th, Hyundai Motor's stock price started the day down 6.5% from the previous session and was trading at 163,000 KRW as of 9:30 AM, down 2.98%. Foreign investors led the sell-off by offloading 417,000 shares.

This is interpreted as a reaction to the announcement made after the market closed the previous day regarding a provision for quality costs amounting to 3.6 trillion KRW (2.1 trillion KRW for Hyundai Motor and 1.3 trillion KRW for Kia Motors). Provisions were set at 1.47 trillion KRW for the Theta GDi engine (2011?2014), 1.37 trillion KRW for the Theta GDi engine (2015?2018), and 814.6 billion KRW for other engine segments, leading to an expected operating loss for the third quarter. According to financial information provider FnGuide, the securities industry's forecast for third-quarter operating profit was around 1.1388 trillion KRW, but with the provision reflected, a loss ranging from 850 billion KRW to 1.1 trillion KRW is expected.

Investors are expressing concern over the sudden deterioration in performance. Expectations for third-quarter results had been raised due to momentum in hydrogen and electric vehicles and strong sales in North America, but accounting for these costs is expected to result in a loss. Hyundai Motor has been the stock most purchased by individuals in the domestic stock market over the past three months. During this period, individuals bought a total of 1.5118 trillion KRW worth of shares, surpassing Samsung Electronics, which was second with 1.1146 trillion KRW in net purchases. Consequently, Hyundai Motor's stock price surged 32% over three months. The stock, which was 126,500 KRW in early August, approached the 190,000 KRW level by the end of last month, marking the highest level since December 2014.

The stock bulletin boards are filled with posts condemning the worsening earnings. One person identifying as a Hyundai Motor shareholder said, "There was high expectation for a third-quarter earnings surprise, and it was recommended by the securities industry and various channels, but suddenly announcing a loss is bewildering," adding, "At this rate, they might not even pay dividends."

The securities industry has also begun adjusting target prices. The large-scale quality cost provision has lowered confidence in the earnings, and there is analysis that claims related to the Theta engine's lifetime warranty could spread to other engines. Hyundai Motor's target price, which had been above 200,000 KRW, was adjusted downward by about 10%. Yongjin Jung, Senior Researcher at Shinhan Financial Investment, explained, "Issues related to quality warranty cost accounting continue, and costs are increasing. Although the automaker reflected the maximum possible costs, the chronic provision issue has caused fatigue, making a downward adjustment inevitable."

Researcher Yongkwon Moon of Shin Young Securities said, "Since there was no interim dividend and losses are expected due to cost occurrences, the year-end dividend should be viewed conservatively," adding, "Given that Hyundai Motor was assigned a high valuation due to recognized competitiveness in next-generation technologies such as hydrogen, electric vehicles, and autonomous driving, efforts to establish defect prevention measures and improve quality fundamentals are necessary."