[Click eStock] "HL Mando, Significant Margin Improvement Needed in Q2"

Target Price Lowered from 63,000 KRW to 50,000 KRW

Daol Investment & Securities downgraded the target price for HL Mando from 63,000 KRW to 50,000 KRW, citing uncertainties in the global automotive supply chain including Mexico and its business in China. The investment rating was maintained at 'Buy.'

HL Mando's sales and operating profit for the first quarter are expected to be 2.1 trillion KRW (down 0.1% year-on-year) and 69.5 billion KRW (down 8.1% year-on-year), respectively. Yoo Ji-woong, a researcher at Daol Investment & Securities, explained, "The temporary sales stagnation in the China region, which contributes significantly to profits, is the main reason for the delayed performance improvement," adding, "The sales slump of major global electric vehicle customers was concentrated in the first quarter, and the continued sluggish operation of the Mexico plant also contributed."

To achieve the annual operating profit margin of mid-4% suggested by HL Mando, a significant margin improvement is needed from the second quarter. Researcher Yoo noted, "The shipment of the braking system IDB, which is the highest-priced and highest-margin contributor among the company's current lineup, to North America is somewhat delayed," and added, "Uncertainty over the Trump administration's second term policies has also begun to affect vehicle production plans, so both North America and China need to record strong performance."

Uncertainty surrounding HL Mando's China business, which accounts for a substantial portion of the company's value, is also expected to persist into the second quarter. Yoo said, "The production momentum of Huawei's HIMA vehicles, the company's main supply network, has not yet been significantly highlighted," and added, "Another customer, Nio, also fell short of sales expectations in the first quarter, indicating intensified competition in the market." He continued, "The removal of the 25% tariff on Mexico will be the first hurdle for stock price revaluation," and added, "The mass production of the Ioniq 9 at the US Meta Plant in the second half of the year and the volume rebound of global electric vehicle companies are expected to act as catalysts for performance improvement."