Kiwoom Maintains 'Neutral' Rating on Automakers... Uncertainty Remains High

2025 Second Half Automotive Industry Outlook
Kiwoom Securities Maintains 'Neutral' Rating Amid U.S. Tariff Uncertainties
Hyundai Motor and Kia's Share Price Recovery Hopes Linked to Dividend Taxation Discussions
High Uncertainty Persists for Finished Automobile Sector
Potential Impact from Inheritance and Gift Tax Act Amendment on Hyundai Motor Group Governance

On May 20, Kiwoom Securities maintained its 'neutral' investment rating on the domestic finished automobile sector, citing ongoing uncertainty stemming from U.S.-origin tariffs. However, the firm also expressed hope for a rebound opportunity for Hyundai Motor and Kia, whose share prices have experienced significant declines, noting that both major political parties are discussing the introduction of separate taxation for dividend income ahead of the presidential election.

Shin Yooncheol, a researcher at Kiwoom Securities, stated in the report "2025 Second Half Automotive Industry Outlook - Sai Ongjima" released on the same day, "With the rapidly changing U.S. tariff policy, the market is experiencing only short-term stock price fluctuations due to information overload and misinterpretation, and there is still no sign of a fundamental resolution of external uncertainties."

Shin pointed out, "The impact of item-specific tariffs on Hyundai Motor Group, which exports about 1.1 million units annually to the U.S., continues to be underestimated," and added, "Unlike global competitors such as GM and Toyota, Hyundai Motor and Kia have not been able to adjust their earnings consensus in a timely manner, resulting in ongoing distortions in their price-to-earnings (P/E) ratios." Kiwoom Securities, which assessed the level of uncertainty for the finished automobile sector in the second half as 'high,' estimates that the combined monthly operating profit impact from automobile item tariffs for Hyundai Motor and Kia could reach as much as 700 billion won this year.

Additionally, Shin noted that Hyundai Motor's domestic sales exceeded 50,000 units in April, but warned, "If low plant utilization rates and price reductions caused by prolonged chasm conditions persist, this will likely weigh on domestic business profitability in the second half." Regarding U.S. inventory, he observed that the inventory turnover period dropped to 65 days as of April, but explained that the pre-demand driven by carflation is only temporary, and if there is no change in tariff policy, a contraction in industry demand from the second half is inevitable.

He further stated, "We believe it will take some time for Korea's tariff negotiations to achieve results, so we are taking the most conservative approach in the market regarding Hyundai Motor and Kia's second-half earnings." He presented estimates for Hyundai Motor and Kia's second-half operating profit at 76% and 71% of the current consensus, respectively.

Accordingly, Shin maintained a neutral investment rating on the finished automobile sector for the second half of 2025, naming Hyundai Mobis as his top pick and Hyundai Motor as a stock of interest. He also commented, "Now is the time to consider investment alternatives that can reflect share price gains in high-dividend, domestically focused stocks that are insulated from tariff shocks." He added that if investment demand for domestic high-dividend stocks expands as the separate taxation of dividend income mentioned as a presidential campaign pledge is implemented, there could be momentum for Hyundai Motor and Kia, which have experienced the largest share price declines.

In addition, regarding the partial amendment to the Inheritance and Gift Tax Act proposed on May 9, he predicted, "If the amendment passes the plenary session without revision and the implementation timeline is set, it is possible that Hyundai Motor Group may move to restructure its governance before the law takes effect." The amendment includes a clause stating, "If the market value of a listed company is less than 80% of its net asset value, even listed shares will be evaluated in the same manner as unlisted shares, taking into account assets and earnings, but the lower limit will be set at 80% of net asset value."