[Weekly HOT Stocks] Kia Motors Focuses on Q3 Profit... Institutional Investors Net Buyers

Strong Performance Expected in Q4... ShinGeum Investment Estimates Kia Motors Operating Profit at 1.1 Trillion KRW

[Asia Economy Reporter Kum Boryeong] Kia Motors attracted market attention throughout the week by recording a profit in the third quarter despite reflecting large-scale quality costs.

According to the Korea Exchange on the 31st, Kia Motors ranked first among the top stocks purchased net by institutional investors from the 26th to the 30th. During this period, institutional investors net purchased Kia Motors shares worth 200.7 billion KRW.

Kia Motors drew attention on the 26th by announcing better-than-expected earnings. Kia Motors' third-quarter operating profit was 195.2 billion KRW, and sales amounted to 16.3218 trillion KRW. Operating profit decreased by 33.02% year-on-year, but sales increased by 8.17%. Kia Motors reflected quality costs of approximately 1.26 trillion KRW related to recalls of some engines such as Theta GDI in the third-quarter results. Because of this, the market initially estimated a turnaround to a loss.

The strong performance was supported by robust domestic sales and mix improvement. According to Kiwoom Securities, compared to the previous year, sales grew by 3.2%, domestic average selling price (ASP) by 9.9%, and export ASP by 14%. The K5, Sorento, and Carnival led the ASP increase among products. Overseas, the U.S. showed balanced recovery in major regions with increased production of Telluride, strong performance of the new K5, and increased sales of eco-friendly vehicles centered on Niro following the lifting of lockdowns in major European countries.

Kia Motors is expected to continue strong performance in the fourth quarter. Shinhan Financial Investment forecasted the fourth-quarter operating profit at 1.1 trillion KRW. The only concern is the strength of the Korean won, which could negatively affect Kia Motors' profitability due to high foreign exchange exposure. However, it is analyzed that the solid earnings base strengthened by the successive hits of key new models will offset the exchange rate variable. Researcher Jung Yongjin of Shinhan Financial Investment explained, "The mix effect accounts for nearly 1 trillion KRW of this year's operating profit increment," adding, "The won's strength can be sufficiently absorbed through ASP increases and incentive reductions."

Brokerages have raised their target prices for Kia Motors. IBK Investment & Securities raised the target price from 45,000 KRW to 71,000 KRW, DB Financial Investment from 50,000 KRW to 70,000 KRW, Kiwoom Securities from 56,000 KRW to 76,000 KRW, and Shinhan Financial Investment from 52,000 KRW to 65,000 KRW.

Kim Minseon, a researcher at Kiwoom Securities, said, "We expect a stepwise recovery in global demand after the fourth quarter, especially considering the base effect of this year's COVID-19 industrial demand, the recovery trend will continue next year," adding, "Domestic sales momentum and the golden cycle of new car launches in major regions such as the U.S., India, and Europe will be maximized, and a virtuous cycle of price increases, mix improvement, higher option adoption rates, and incentive reductions is expected to continue."