[Click eStock] "Kia Severely Undervalued Despite High ROE... Target Price Down"

Target Price Downgraded from 160,000 KRW to 145,000 KRW

On the 28th, LS Securities downgraded the target price for Kia from 160,000 KRW to 145,000 KRW, citing that despite Kia's high Return on Equity (ROE), its valuation is undervalued. The investment rating was maintained as 'Buy.'

Lee Byung-geun, a researcher at LS Securities, stated, "Considering the valuation decline of global Original Equipment Manufacturers (OEMs), we lowered the target Price-to-Book Ratio (PBR) to 1.0 times," adding, "The current stock price is at 3.8 times Price-to-Earnings Ratio (PER) and 0.6 times PBR on a 12-month forward basis, indicating a severe undervaluation compared to the high ROE."

Kia recorded sales of 26.5 trillion KRW in the third quarter of this year, a 3.8% increase year-on-year, and operating profit of 2.9 trillion KRW, up 0.6%. The researcher analyzed, "This performance fell short of the consensus operating profit estimate of 3.1 trillion KRW," but noted, "Similar to Hyundai Motor, quality costs of 631 billion KRW occurred due to the Lambda 2 engine; excluding this, operating profit reached 3.5 trillion KRW."

Steady profits are expected to continue. The researcher forecasted, "Although it will be difficult to expect significant volume effects in the short term due to an overall volume decline caused by the sluggish European economy, sales are expected to be higher than in the third quarter due to the resolution of production gaps at the Hwaseong and Gwangmyeong plants and the entry into the peak season," adding, "Strong performance will continue through the effects of a strong dollar, improved mix centered on the U.S. market, ongoing reductions in material costs, and expanded sales of Hybrid Electric Vehicles (HEV)." Additionally, with the start of operations at Hyundai Motor Meta Plant America (HMGMA) in October, North American incentives are expected to gradually stabilize.

There is an opinion that valuation could be revised upward if additional shareholder returns occur. The researcher said, "Following the third-quarter earnings announcement, the remaining treasury shares acquired earlier this year were canceled as planned," and added, "The current shareholder return ratio is about 31%; based on the high ROE, if additional shareholder returns are made, an upward revision of valuation is considered possible."