Auto Parts Suppliers Also 'Smile' as Car Sales Increase

Q2 Auto Parts Suppliers' Earnings Forecast '↑'
April-May Vehicle Production Up 25% YoY

Automotive parts companies are expected to record strong performance in the second quarter. This is due to an increase in finished car sales volume as well as the stabilization of logistics costs, which is also expected to contribute to their earnings.

[Image source=Yonhap News]

On the 29th, securities firms (based on FnGuide) projected Hyundai Mobis's second-quarter sales and operating profit to be 15.0175 trillion KRW and 627.8 billion KRW, respectively. This represents increases of 22.01% and 55.56% compared to the same period last year. Additionally, HL Mando is expected to record sales of 2.0888 trillion KRW and operating profit of 79.9 billion KRW, marking growth of 24.41% and 74.84% compared to the same period last year. Furthermore, Hanon Systems and Hyundai Wia are also expected to achieve growth exceeding 10%.

The strong performance of automotive parts companies in the second quarter is primarily due to the steady increase in finished car sales volume. Concerns over semiconductor supply have been resolved, leading to a sharp rise in domestic automobile production and sales. In April and May, domestic finished car manufacturers produced 382,265 and 382,129 vehicles respectively, totaling 764,394 units. This is a 24.59% increase compared to 613,510 units during the same period last year.

Moreover, the stabilization of crude oil prices has contributed to the improvement in operating profits. Last year, the Russia-Ukraine war caused crude oil prices to surge. Additionally, maritime logistics congestion caused the Shanghai Containerized Freight Index (SCFI) to spike beyond 5,000, leading parts companies to spend a significant amount on logistics costs. However, this year, crude oil prices have fallen and the SCFI has dropped to around 1,000, reducing the logistics cost burden. For example, Hyundai Mobis spent 258.346 billion KRW on logistics costs in the fourth quarter of last year but used 150.062 billion KRW in the first quarter of this year.

The increase in production volume by finished car manufacturers and diversification of customers are also expected to positively impact parts companies' performance. Hyundai Mobis is expected to directly benefit from the sales growth of Hyundai Motor Company and Kia. Based on first-quarter sales, the proportions of sales to Hyundai Motor Company and Kia were 44.8% and 35.8%, respectively. In April and May, production volumes of Hyundai Motor Company and Kia increased by nearly 20% compared to the same period last year.

HL Mando is anticipating improved profitability through restructuring of its domestic and Chinese factories. Additionally, since it has secured major customers including Hyundai Motor Group, North American electric vehicle companies, GM, and Ford, sales are also expected to increase. Eunyoung Lim, a researcher at Samsung Securities, stated, "Along with the new car cycles of Hyundai Motor Company, Kia, and North American customers, HL Mando's performance has entered an improvement cycle," adding, "The low-profitability period with operating profit margins of 1-4%, which lasted for six and a half years since the 2017 Terminal High Altitude Area Defense (THAAD) incident, will come to an end."