[Into the Stocks] Mando of Opportunity, Mando of Crisis

[Asia Economy Reporter Hwang Junho] The stock price of Mando, an automotive parts company, stands at a crossroads. With first-quarter earnings exceeding expectations, the stock price rose by 12.39% compared to the end of last month. However, opinions differ regarding future prospects. Some view the need to consider short-term impacts due to the shortage of automotive semiconductors and have lowered their target stock prices, while others believe that valuation pressures have eased following the recent stock price decline.

As of the 13th, Mando's stock price was 65,300 KRW per share, up 12.39% from 58,100 KRW at the end of last month. The stock price, which had been declining throughout last month, began to recover this month.

Seeing Hope in Q1

However, views in the securities industry are divided. Some research centers at securities firms, which had been busy lowering Mando's target stock price until last month, changed their outlook after Mando's Q1 earnings announcement.

Mando recorded sales and operating profit of 1.5016 trillion KRW and 71.9 billion KRW respectively in Q1. These figures represent increases of 191.5% and 53.4% year-on-year. The operating profit exceeded the market consensus of 63.4 billion KRW by about 13%.

The quality of the earnings was also noteworthy. Due to the shortage of automotive semiconductors causing supply issues, sales in North America increased by only 5%. Sales in Europe and South America remained flat compared to the previous year. In contrast, sales in Korea, China, and India surged by 8%, 90%, and 28%, respectively. Sales to electric vehicle manufacturers also rose by 54%. Consequently, the sales proportion from major customers other than Hyundai Motor, Kia, GM, and Geely increased by 3.1 percentage points to 31.4%. With the rise in the proportion of relatively high-margin customers and products and efforts to reduce fixed costs, the operating profit margin increased by 3.4 percentage points to 4.8%.

Jung Yongjin, a researcher at Shinhan Financial Investment Research Center, analyzed, "The reason for the improvement in Q1 earnings despite the negative environment was the strong performance in China and India, and the favorable conditions in these two regions are expected to continue into Q2. The company's fundamental improvement factors, which are relatively less known compared to the widely recognized negative factor (semiconductor shortage), are important."

Q2 Semiconductor Supply Impact

However, there is also a view that it is necessary to continue monitoring Mando's performance as before. The Q1 results did not reflect the impact of the semiconductor supply imbalance. Excluding a one-time gain of 3.3 billion KRW, operating profit can be seen as in line with market expectations. There is a perspective that the current upward trend in the stock price should be observed carefully.

SK Securities has lowered the target stock price from 90,000 KRW to 78,000 KRW, reflecting production concerns due to semiconductor supply issues.

In the Q1 earnings conference call, Mando stated that the shortage of automotive semiconductors caused production disruptions for GM and Ford, resulting in negative impacts on sales in those regions. They also mentioned that the related effects would be fully reflected in Q2 and that normalization of supply is expected around Q3.

Securing profitability in Mando's next-generation growth engine, the Advanced Driver Assistance Systems (ADAS) division, is also crucial. Kim Pyeongmo, a researcher at DB Financial Investment, explained, "The ADAS division experienced about a 15% sales decline year-on-year in Q1 due to semiconductor supply issues, and production disruptions of 200,000 to 500,000 units are unavoidable in Q2 for GM and Hyundai Motor Group."

Mando was established through the spin-off of the automotive parts manufacturing and sales division of Halla Holdings. Recently, with strengthened safety regulations and growth in the autonomous driving market, the ADAS division's growth has emerged as a factor raising valuation expectations.

Moon Yongkwon, a researcher at Shin Young Securities, analyzed, "Despite a 187% increase in Genesis deliveries in Q1, ADAS sales increased by only 200 million KRW year-on-year, and the sales proportion was a disappointing 12.5%. The sales proportion is also expected not to exceed the all-time high of 15.1% in Q2." However, he added, "Due to the stock price decline over the past three months, there is more than 10% upside potential, leading to an upgrade of the investment opinion from neutral to buy."