[This Week's Industry Highlights] Hyundai Motor Becomes the First Ever 'Top Performer Among Listed Companies'

Clear Growth in Car Sales in North America and Europe
Operating Profit of 2.5 Trillion KRW in Q1...Up 32% from Last Year
Struggles in China and Russia...Active Pursuit of Growing Demand in India Market

Editor's NoteDear individual investors dreaming of successful investments. How well do you know the stocks you invest in with your own money? In the unrefined and chaotic online environment filled with all kinds of information, Asia Economy aims to be your hands, feet, eyes, and ears by delivering accurate information about companies. Each week, we focus on companies that rank high in stock inquiries by the financial information provider FnGuide, delivering everything from basic information to analyses of related companies such as partners, customers, and investors. We will explain companies' financial conditions, performance status, and future value in an easy-to-understand manner. We come to you every week under the name "This Week's Hot Stock," or "This Week's Gwan.Jong." This week, we analyzed Hyundai Motor Company, which is expected to have the best performance among domestic listed companies this year and has attracted significant investor interest.

This year is expected to be a monumental year for Hyundai Motor Company. Hyundai is anticipated to become the company with the highest operating profit among those listed on the domestic stock market in the first half of this year. Since the adoption of International Financial Reporting Standards (IFRS) in 2009, this is the first time Hyundai has ranked first in operating profit among listed companies. It is expected to join the "10 trillion KRW operating profit club" on an annual basis. The stock price has already surged nearly 20% compared to the beginning of the year, fueled by high expectations.

Hyundai Motor Group Chairman Chung Euisun is delivering a New Year's message about the management strategy and direction for the new year at the New Year's meeting held on January 3rd at Hyundai-Kia Namyang Research Center in Hwaseong, Gyeonggi Province.
Photo by Kim Hyunmin, Hwaseong kimhyun81@

According to financial information provider FnGuide on the 29th, Hyundai's estimated operating profit for Q1 is approximately 2.5 trillion KRW (consolidated basis), representing a 32% increase compared to the same period last year (1.9289 trillion KRW). In Q1 last year, Samsung Electronics led overwhelmingly with operating profits of 14.1214 trillion KRW, followed by HMM (3.1486 trillion KRW), SK Hynix (2.8596 trillion KRW), POSCO Holdings (2.2576 trillion KRW), and Hyundai Motor. Due to the recent downturn in the semiconductor industry, Samsung Electronics is expected to lose its "top performance" crown for the first time in 14 years and fall to the top 5.

Hyundai's estimated operating profit for the first half, including Q2, reaches a total of 5.3 trillion KRW. The securities industry expects the semiconductor market to hit its "bottom" in Q2, with Samsung Electronics' performance likely to rebound only after Q3. Meanwhile, Hyundai's "top performance" streak is expected to continue. This ranking is based on the average earnings forecasts from more than three estimation agencies for 199 KOSPI and KOSDAQ listed companies. Although not all listed companies are included, most major companies with high sales have been estimated, so the rankings are unlikely to change significantly.

Supported by expectations of strong performance, Hyundai's stock price has also shown an upward trend this year. According to the Korea Exchange, Hyundai's stock price closed at 151,000 KRW at the end of last year and closed at 177,100 KRW the previous day, marking a 17.3% increase over three months.

Despite economic uncertainties, Hyundai's shining Q1 performance is attributed to clear growth in automobile sales in key markets such as North America and Europe, excluding China. In January, Hyundai Motor Group's wholesale sales outside China totaled 538,000 units, an 8.6% increase year-on-year. In February, sales rose further to 558,000 units, an 11.4% increase. Although strong competitor Tesla implemented price cuts and concerns about the Inflation Reduction Act (IRA) discrimination and economic slowdown were high in the U.S. market, Hyundai succeeded in defending its market share through shipment recovery due to supply normalization. The base effect from the severe vehicle semiconductor supply shortage that disrupted production in Q1 last year also played a significant role. Jang Moon-su, a researcher at Hyundai Motor Securities, explained, "The domestic finished car industry has exhausted its backlog demand due to supply chain normalization, and with the increase in electric vehicle volume, it is expected to approach aggressive target levels. Especially, the global expansion of volume new models and volume net increase led by electric vehicles in domestic and U.S. markets are expected to diversify the product mix."

In the European market, sales recorded 39,000 units in January, a 4% increase, and 38,000 units in February, a 2% increase. Although this is a slight increase compared to the same period last year, it is lower than the overall growth rate of the European automobile market (11% cumulative in February). Song Seon-jae, a researcher at Hana Securities, said, "European automobile sales have continued to grow for seven consecutive months, but compared to February 2019, before the market downturn, sales are still at 79%, indicating room for recovery. Hyundai's European sales have underperformed the market growth rate and have lagged behind since August last year."

However, the fact that Hyundai is losing ground in the Chinese market is the biggest threat. Hyundai's sales in China exceeded 1 million units in 2013 and approached 1.2 million units annually from 2014 to 2016. But since 2017, sales have sharply declined, reaching about 200,000 units last year. Price competition has become extremely fierce, especially centered on electric vehicles, with Toyota conducting 1+1 promotions and BYD implementing price cuts. Hyundai, losing out in competition, is pushing to sell its Beijing-based affiliate Hyundai Steel's Beijing branch. It is also pursuing a strategy to reduce its presence in China by selling two of its four local factories.

The Hyundai Motor plant in Saint Petersburg, Russia, which has been shut down for a year since March last year due to Russia's invasion of Ukraine, is also a headache. According to a report by Russian state news agency TASS citing local senior officials, Hyundai is negotiating the sale of the plant and a facility in Kazakhstan. There is speculation that a contract could be signed as early as June. The Saint Petersburg plant annually produced about 200,000 units of strategic models such as the Creta and Solaris. Hyundai announced on the 10th, "We are reviewing various options regarding the Hyundai Russia plant, but no specific decisions have been made at this time."

Hyundai aims for a turnaround in the Indian market, which has a population of 1.4 billion comparable to China. India's GDP growth rate is projected at 9% this year, with a per capita GDP of about 2,700 USD. Reflecting on China's explosive automobile market growth when its per capita GDP surpassed 2,700 to 3,000 USD in 2007-2008, it is analyzed that India is also entering a period of significant automobile demand growth. Hyundai's sales in India have steadily increased since surpassing its Chinese sales in 2018.

As of last year, India's automobile demand was about 4.4 million units, growing 23.4% year-on-year and ranking about 4th globally. The industry expects India's automobile market to grow more than 10% annually and reach a scale of 10 million units by around 2030. Hyundai entered the Indian market in 1996 and currently operates two local factories with an annual production capacity of about 700,000 units. Sales from Indian factories stagnated at around 650,000 units since 2010 but are expected to reach 700,000 units this year. Especially, as domestic demand in India rapidly increases, the export ratio of production from India has shrunk from 50% in 2010 to about 15-20% currently. The average selling price (ASP) also increased from 8.3 million KRW in 2010 to 13.2 million KRW last year due to rising income levels in India.

Hyundai is also currently pursuing the acquisition of GM's plant in India. The acquisition target includes a finished car plant with a capacity of 130,000 units and an engine plant with a capacity of 160,000 units. This means that finished car production capacity could expand by more than 300,000 units. After acquiring and reorganizing the GM plant, Hyundai's production capacity in India is expected to approach 1 million units annually. Im Eun-young, a researcher at Samsung Securities, said, "Hyundai's sales in India are expected to reach about 950,000 units by 2025 due to increasing demand. Sales revenue of 14.6 trillion KRW and net profit of 1.2 trillion KRW are expected, which will sufficiently offset the sluggishness in the Chinese market."