[Click eStock] Hyundai Wia Proves Q1 Earnings Turnaround, 'Buy Maintained'

[Asia Economy Reporter Lee Seon-ae] Hana Financial Investment announced on the 25th that it maintains a buy rating and a target price of 88,000 KRW for Hyundai Wia.

The first-quarter earnings exceeded market expectations, supported by mix improvement, exchange rate appreciation, and a turnaround to profitability in the machinery division. Although there will be negative impacts due to the suspension of the Russian plant from the second quarter onward, the earnings turnaround trend is expected to continue as the profit improvement factors observed in the first quarter are maintained.

Song Seon-jae, a researcher at Hana Financial Investment, emphasized, "Based on the current stock price, the price-to-earnings ratio (PER) is 11 times, which is not attractive in terms of profitability indicators, but considering the low profitability at the early stage of the turnaround and the price-to-book ratio (PBR) being in the low 0.5 times range, we believe the stock price will move in the direction of improvement."

The first-quarter earnings exceeded market expectations. Sales and operating profit increased by 3% and 88% year-on-year, respectively, recording 1.91 trillion KRW and 51.5 billion KRW (operating margin 2.7%). Despite production disruptions at major customers and the suspension of the Russian plant, sales in the vehicle parts division increased by 2% year-on-year, supported by increased production of SUV models leading to higher sales of 4WD drive systems and improved operating rates at the Mexico plant. The division's operating margin rose by 0.4 percentage points year-on-year and 2.5 percentage points quarter-on-quarter to 2.9%.

Second-quarter sales and operating profit are expected to increase by 3% and 6% year-on-year, respectively, to 2.04 trillion KRW and 48 billion KRW (operating margin 2.4%). Researcher Song explained, "Vehicle parts sales are expected to increase by 3%. Although there will be impacts from the shortage of automotive semiconductors, the Russia-Ukraine war, and poor market share in China by customers, we expect positive effects from product mix improvement driven by increased sales of SUVs and luxury models by customers, as well as exchange rate appreciation." He added, "Machinery sales are expected to increase by 5%, contributed by increased volume of general-purpose machines and ASP management due to reduced discount sales. Profit margins are expected to rise year-on-year due to exchange rate appreciation and improved profitability in the machinery division, but are likely to decline quarter-on-quarter due to worsening profitability at the Russian plant."