[Click eStock] Mando, Production Disruptions Inevitable... Expecting Increased Supply of Electric Vehicle Models

[Asia Economy Reporter Lee Seon-ae] Hana Financial Investment maintained its buy rating on Mando on the 13th but adjusted the target price from the previous 78,000 KRW to a new 73,000 KRW (applying a 12-month forward price-to-earnings ratio (PER) of 16) considering the downward revision of earnings estimates.

The third-quarter earnings are expected to fall short of expectations due to a decline in sales in major regions caused by production disruptions at automakers resulting from a shortage of automotive semiconductors. The target price adjustment reflects the expectation that these impacts will continue for some time, leading to downward revisions of earnings estimates for 2021 and 2022.

Song Seon-jae, a researcher at Hana Financial Investment, explained, "However, the recent stock price has already factored in these concerns, and some factors that further worsened the semiconductor shortage are somewhat improving. Additionally, Mando's supply to electric vehicle manufacturers in the US, China, and Germany is increasing, which suggests that the outlook is more optimistic than worrying. From a shareholder value perspective, it is important to monitor the degree and timing of the stake sale or dilution of Mando Mobility Solutions (wholly owned by Mando), which was split off in September."

Meanwhile, supply to electric vehicle manufacturers, mainly North American EV companies and China's Nio, is expected to increase further after the fourth quarter. Supply to North American EV manufacturers, which is increasing mainly in the US and China, will begin additional deliveries from the German plant starting from late 2021 to the first quarter of 2022. Sales related to this are expected to rise from 570 billion KRW in 2021 to 640 billion KRW and 710 billion KRW in 2022 and 2023, respectively, representing a low double-digit percentage increase.

Sales to Nio are expected to increase from 30 billion KRW to 40 billion KRW annually as the number of supplied models grows in 2022. Suspension sales to Volkswagen will also start from the second quarter of 2022, with an expected contribution of about 40 billion KRW in 2022, considering the 10-year contract worth approximately 1.4 trillion KRW (140 billion KRW annually). Lastly, supply to a North American electric pickup truck manufacturer is also ramping up, with expected annual sales exceeding 20 billion KRW.