[Click eStock] Kia, Current Stock Price Implies Next Year's PER of Only 4 Times, 'Excessive Undervaluation'

[Asia Economy Reporter Lee Seon-ae] Shinhan Investment Corp. announced on the 12th that it maintains a buy rating and a target price of 115,000 KRW for Kia. The current stock price reflects a price-to-earnings ratio (PER) of only 4 times for 2023, which is considered excessively undervalued even when accounting for concerns about an economic downturn and diminished earnings visibility.

Jung Yong-jin, a research fellow at Shinhan Investment Corp., stated, "During the 2009-2012 automotive, chemical, and petrochemical cycle, the peak operating profit was 3.5 trillion KRW," adding, "In the subsequent three-year profit decline cycle (2013-2015), operating profit decreased by 33%, recording 2.4 trillion KRW in 2015. Even assuming a conservative 33% profit decline next year, the PER would still be only 6 times."

Third-quarter earnings are expected to show sales of 22.5 trillion KRW, a 27% increase year-on-year, and operating profit of 2.4 trillion KRW, an 82.9% increase. This surpasses market expectations (operating profit of 2.2 trillion KRW) by 8%. The shortage of automotive semiconductors has entered a resolution phase except in some regions. However, in North America, where market demand remains strongest, competitors are experiencing prolonged production disruptions. As a result, the automotive industry boom continues. Local inventory levels in the U.S. have consistently remained below a one-month supply. Dealer incentives, the most sensitive cost variable, recorded an all-time low average of 585 USD per vehicle in the third quarter, down 74.5%.

Research fellow Jung noted, "It is still too early to worry about a decline in demand from advanced countries due to economic slowdown," adding, "Sales of non-core models (compact and mid-size sedans) remain solid without increased promotional costs. If new car demand slows significantly, signals such as expanded promotional expenses, price reductions, or inventory increases would be detected first."

Wholesale sales in the third quarter reached 752,000 units (+10.1%). Overseas production and export performance stood out more than domestic sales, which were affected by summer vacations and line maintenance. Consequently, overseas wholesale sales recorded 619,000 units (+10.9%), effectively absorbing the impact of the strong dollar.