[Click eStock] Kia, SUV Big Cycle and EV6 in Focus... Production Disruptions Offset

[Asia Economy Reporter Lee Seon-ae] Hana Financial Investment maintains a buy rating and a target price of 110,000 KRW for Kia on the 23rd. Although the first-quarter earnings significantly improved compared to the same period last year due to a mix improvement centered on Korea and the United States, they somewhat fell short of the heightened market expectations. However, this is not a cause for concern as it is attributed to negative exchange rate trends and temporary export shipment inventory sluggishness, which are expected to be resolved in the second quarter. The SUV new car big cycle, continuing from Telluride-Sorento-Carnival-Sportage, is extending from Korea to the United States, and the strong earnings trend is expected to continue beyond the second quarter. Additionally, attention should be paid to the increase in the proportion of eco-friendly car sales as the EV6, an electric vehicle dedicated model, will be launched in July.

Song Seon-jae, a researcher at Hana Financial Investment, stated, "The current stock price is in the high 8 times range of the 12-month forward price-to-earnings ratio (PER), which is lower than the global industry average, indicating an undervalued state that does not fully reflect these earnings and momentum." He added, "There are also medium- to long-term growth potentials in business opportunities in the PBV sector, and although the shortage of automotive semiconductors was a short-term burden, it is a problem expected to be resolved in the medium to long term. Therefore, it is necessary to approach the recent stock price adjustment from a buying perspective."

Meanwhile, production disruptions caused by semiconductor shortages can be compensated for later. Compared to the beginning of the year’s earnings guidance, Kia showed better results in the first quarter, and the mix improvement through new car effects is continuing, so the trend is expected to improve beyond the initial forecast. Regarding the semiconductor supply shortage issue, May to June is the most difficult period, but it is expected to improve as supply and demand balance loosens after the third quarter. Considering the deferred demand for Kia’s new cars, some production disruptions are expected to be compensated for. In response to strengthening environmental regulations, there are plans to increase electric vehicle production. Although the local electric vehicle plant in the United States will be decided considering regional demand, it has not been concretized at this time. The second-generation integrated controller, essential for autonomous electric vehicles, is expected to be adopted from the 2023 electric vehicle models.