[Click eStock] "Hyundai Wia, Poor Performance Continues Through Q1"…Target Price Down

[Asia Economy Reporter Ji Yeon-jin] Shinhan Financial Investment announced on the 21st that it expects Hyundai Wia's poor performance to continue until the first quarter of this year and lowered the target stock price by 14% to 90,000 won. However, it maintained a buy investment opinion, anticipating the greatest leverage effect during the volume recovery phase of finished vehicles after the first quarter.

Hyundai Wia's sales in the fourth quarter of last year are expected to decrease by 0.8% to 1.9 trillion won, while operating profit is projected to increase by 67.2% to 21.4 billion won. The operating profit is 42% below market expectations. The slump in China continues, and numerous one-time costs have also occurred. Shipments to China amounted to 136,000 units, down 35.3%. Additionally, initial losses from the operation of the Russian engine plant, which began in the third quarter of last year, have been recognized.

Since 2017, when Hyundai and Kia's sales in China sharply declined, the operating profit margin has remained at the 1% level for five consecutive years. Although efforts such as internal cost reduction and normalization of the machinery sector are underway, the impact of volume decline has been greater. Hyundai and Kia's volume in China peaked at 1.79 million units in 2016 and fell to 500,000 units in 2021.

Jung Yong-jin, Senior Research Fellow at Shinhan Financial Investment, stated, "Further volume decline is expected to be limited, and with expectations of vehicle production normalization this year, volume recovery outside China is expected to become visible," adding, "Even without assuming a recovery in China, profitability improvement is possible due to increased constant velocity joint volume, expansion of four-wheel drive ratio, and operation of the Russian engine plant."