[MarketING] Electric Vehicle Investment and Strong Performance Drive Auto Stocks Rally

KOSPI Rises for Fourth Day... Closes Slightly Higher
KOSDAQ Falls Over 1% Due to Sharp Drop in Secondary Battery Stocks

The KOSPI continued its four-day rally, climbing to the 2550 level. The recent series of positive factors has sustained the upward trend in automobile stocks. The stock prices have been boosted by Hyundai Motor Group's investment in the electric vehicle sector, strong export performance, and expectations for first-quarter earnings this year.

KOSPI rises for four consecutive days... Gains limited ahead of US economic data

On the 12th, the KOSPI closed at 2550.64, up 2.78 points (0.11%) from the previous day. The KOSDAQ ended the session at 890.62, down 8.32 points (0.93%). With the US Consumer Price Index (CPI) for March and a series of US economic indicators scheduled for release that evening, cautious sentiment expanded, limiting the gains in stock prices. The KOSDAQ was dragged down as the top market cap secondary battery stocks, which had led the recent rally, plunged sharply.

[Image source=Yonhap News]

Seokhwan Kim, a researcher at Mirae Asset Securities, analyzed, "Heightened caution ahead of the US CPI and Federal Open Market Committee (FOMC) minutes release led to increased profit-taking mainly in secondary battery and semiconductor stocks that had surged recently. Meanwhile, the automobile, steel, and machinery sectors showed strength, driven by expectations from Hyundai Motor's electric vehicle investment plans and anticipated benefits from the Chinese government's expanded infrastructure investments."

Due to the continuous positive factors, automobile stocks have maintained their upward momentum. On this day, Hyundai Motor rose 3.18%, Kia increased by 1.29%, and Hyundai Mobis climbed 4.98%. Hyundai Motor and Kia sustained their gains for three consecutive days, while Hyundai Mobis maintained its rise for two days in a row. Hyundai Motor's recent increase has brought it close to regaining the 200,000 KRW price range.

The electric vehicle investment plan announced the previous day lifted the stock prices. Hyundai Motor Group held a groundbreaking ceremony for a dedicated electric vehicle factory and announced plans to invest a total of 24 trillion KRW in the domestic electric vehicle sector over eight years until 2030. The annual domestic electric vehicle production is planned to expand from 330,000 units last year to 1.51 million units by 2030, with exports expected to grow more than fourfold from last year to 920,000 units.

Despite sluggish exports overall, automobile exports showed favorable performance, positively impacting stock prices. According to the Korea Customs Service announcement the previous day, exports from the 1st to the 10th of this month amounted to 14.027 billion USD, down 8.6% compared to the same period last year. By item, semiconductors decreased by 39.8%, wireless communication devices by 38.8%, steel products by 15.1%, and petroleum products by 19.9%, whereas passenger cars increased by 64.2% and automobile parts by 6.7%.

Automobile stocks buoyed by first-quarter earnings expectations

While corporate earnings are expected to continue to be weak in the first quarter of this year, automobile stocks are projected to deliver better-than-expected results.

According to financial information provider FnGuide, Hyundai Motor's consensus forecast for first-quarter earnings this year is sales of 36.0878 trillion KRW, up 19.11% year-on-year, and operating profit of 2.7883 trillion KRW, soaring 44.55%. Kia is expected to post sales of 22.765 trillion KRW, up 24.01%, and operating profit of 2.2478 trillion KRW, up 39.92%.

Ja-il Lee, a researcher at Eugene Investment & Securities, stated, "Hyundai Motor's first-quarter operating profit is expected to reach 3.025 trillion KRW, a 56.8% increase from the same period last year, marking the highest operating profit ever for a first quarter. This is due to better-than-expected wholesale sales growth driven by strong domestic, export, and North American market sales, as well as the price increases of new models such as the Grandeur, Kona, and Ioniq 6, which boosted average selling price (ASP) and margin rates." He projected Hyundai Motor's full-year earnings at 160 trillion KRW in sales and 12.9 trillion KRW in operating profit, exceeding the guidance provided by Hyundai Motor.

On the back of solid earnings, securities firms are raising their target prices for Hyundai Motor and Kia. Hana Securities raised Hyundai Motor's target price from 225,000 KRW to 235,000 KRW and Kia's from 90,000 KRW to 110,000 KRW. Seonjae Song, a researcher at Hana Securities, said, "We forecast Hyundai Motor's first-quarter operating profit at 3 trillion KRW and Kia's at 2.4 trillion KRW. Strong sales volume, favorable exchange rates, and incentives make these figures better than our previous estimates and align with the recently elevated market expectations."

Valuation normalization is also expected. Junseong Kim, a researcher at Meritz Securities, said, "Hyundai Motor's stock price has been trading at about a 40% discount compared to the 12-month forward price-to-earnings ratio (PER) maintained over the past 20 years due to weak demand, rising inventory, increased incentives, and concerns over deteriorating earnings. Now, with demand increasing and inventory and incentive trends stabilizing, earnings upgrades and valuation normalization will occur simultaneously." Kim raised Hyundai Motor's target price from 250,000 KRW to 280,000 KRW.