[Click eStock] "SNT Motive, Eco-friendly Vehicle Motor Decline"... Target Price Down

[Asia Economy Reporter Ji Yeon-jin] Hana Financial Investment maintained a buy rating on SNT Motive but lowered its earnings estimates and cut the target price from 82,000 KRW to 75,000 KRW on the 3rd.

Song Seon-jae, a researcher at Hana Financial Investment, said, "The second-quarter earnings this year fell short of market expectations due to production disruptions at client companies caused by a shortage of automotive semiconductors," adding, "More disappointing than the simple earnings miss is the contraction in the eco-friendly vehicle motor segment. Although the production of eco-friendly vehicles by client companies increased, SNT Motive's motor sales declined, raising concerns about weakening growth momentum based on existing supply models." He continued, "For the stock price to break out of the current range and return to an upward trend, it is necessary to confirm the normalization and additional growth of production for the supplied models or to watch for new orders from the main client's platform or other electric vehicle manufacturers."

SNT Motive achieved second-quarter sales of 221.9 billion KRW, a 15% increase compared to the same period last year, and operating profit of 21.6 billion KRW, up 65%. However, operating profit was 11% below market expectations. Although sales increased in the automotive parts, motor, electronics, and special business divisions compared to the second quarter of last year, the impact of production disruptions due to the shortage of automotive semiconductors led to weaker-than-expected results.

The growth drivers for SNT Motive, the eco-friendly motor and drive unit segments, saw related sales increase by 20% and 46% in 2019 and last year, respectively, with their sales proportions rising to 20% and 30% during this period. This year, drive unit sales are expected to grow supported by regional and model expansion for North American clients, and eco-friendly vehicle motor sales are anticipated to increase due to higher production of supplied models and additional contributions from HSG motors.

Researcher Song said, "Drive units experienced temporary disruptions in the second quarter due to semiconductor supply shortages but are expected to gradually improve in the second half," while noting, "On the other hand, despite the impact of semiconductor shortages, the second-quarter contraction in eco-friendly vehicle motors is somewhat disappointing. During the second quarter, client companies' production of eco-friendly vehicles increased by 28%, and additional deliveries of HSG motors began in the second half of last year, so the base effect was significant through the second quarter."

He added, "Delays in orders from electric vehicle-dedicated platforms and a rising base for HSG motors in the second half, combined with a slowdown in existing supply models, could weaken SNT Motive's growth momentum. For the stock price to rise, it is necessary to confirm the normalization and additional growth of production for supplied models after the second half or to dispel related concerns through new orders from the main client's platform or other electric vehicle manufacturers."