[Click eStock] "Hanon Systems Target Price, Investment Opinion Maintained"

Kiwoom Securities maintained its target price of 5,500 KRW and a buy rating for Hanon Systems on the 4th.

Shin Yoon-chul, a researcher at Kiwoom Securities, stated, "Hanon Systems has presented performance guidance for 2024 (sales of 10 trillion KRW, operating profit of 400 billion KRW) and 2025 (sales of 11 trillion KRW, operating profit of 600 billion KRW), but realistically, the likelihood of achieving these is low, so an update is necessary. Although the dilution of investor shares due to the expansion of the rights offering scale is not positively evaluated, the current stock price has already absorbed this negative factor. Considering Hanon Systems' net loss scale this year, the judgment that a year-end dividend is unlikely remains valid following the previous report."

It is expected to record sales of 2.4 trillion KRW and an operating profit of 80.1 billion KRW, meeting the market's operating performance expectations (sales of 2.4 trillion KRW, operating profit of 76.8 billion KRW). However, due to the still high financial cost structure, our company expects Hanon Systems' controlling shareholder net profit to break even (BEP), while the market expectation is formed at 24.1 billion KRW, which should be noted.

The Kia EV3, equipped for the first time with Hanon Systems' 4th generation battery thermal management system, shipped more than 15,000 units in the third quarter (8,000 domestic, 7,700 exports), which is believed to have contributed to the recovery of Hanon Systems' domestic profitability. From the first half of next year, mass production of the Kia EV4 equipped with the 4th generation battery thermal management system will join, strengthening economies of scale.

Profitability in the European region is also expected to partially recover through cost recovery from European customers, where BEV volume remains sluggish. Hanon Systems announced on the 1st the signing of a stock purchase agreement signaling a change in the largest shareholder. After our report upgrading Hanon Systems' investment opinion was published on September 3, an unexpected announcement on September 30 regarding changes in acquisition conditions involving an expanded rights offering scale caused a short-term sharp decline in Hanon Systems' stock price.

However, as the selling pressure due to concerns over share dilution appears to have recently begun to ease, the buy rating is maintained. It is also judged that Hankook Tire & Technology, which will become the largest shareholder, will undertake efforts to normalize management to restore Hanon Systems' corporate value.

If it secures a 54.8% stake, Hanon Systems' performance will be reflected in the consolidated financial statements going forward, and especially the balance sheet is expected to bear increased burdens. This is the background for separating 200 billion KRW of the 600 billion KRW rights offering for Hanon Systems' debt repayment funds.

Some of the 400 billion KRW allocated for operating funds is expected to be used for fixed cost efficiency improvements and global restructuring funds that Hanon Systems has been promoting to enhance profitability. In particular, the efficiency improvement of European plants with high costs and low productivity is expected to be a major target.

This M&A deal includes a put option allowing Hahn & Company to sell up to 40% of the remaining shares to Hankook Tire & Technology at 5,200 KRW per share in early 2027. Kiwoom Securities expects Hanon Systems' largest shareholder to seek to resolve the put option risk through stock price appreciation.