Korea-US Tariff Deal Reached, Auto Sector Finally Sees the Light [Click e-Stock]

Hyundai Motor and Kia's Operating Profit Expected to Recover to 4.4 Trillion Won
Anticipation Grows for Hyundai Motor's Share Buyback and Cancellation

With the conclusion of the Korea-US tariff negotiations, automobile tariffs have been reduced from the previous 25% to 15%. It is expected that the combined annual operating profit of Hyundai Motor and Kia will recover to over 4 trillion won. As uncertainties are resolved, share buybacks and cancellations, as well as restructuring of the corporate governance structure, are expected to proceed, leading to a rapid normalization of corporate value.

On October 30, Daol Investment & Securities maintained its 'Overweight' rating on the automobile sector based on these developments. Following the Korea-US summit the previous day, the tariff negotiations were concluded, and as agreed at the end of July, automobile tariffs will be lowered from 25% to 15%. The projected tariff cost, which has been a major factor in poor profits since April this year, is expected to decrease by about 40%. This will allow Korean automakers to compete on equal footing with Japanese and European car companies, which already enjoy a 15% tariff rate in the US market. In addition, as uncertainties about production scale, such as sluggish exports, are resolved at once, a sharp recovery in stock prices is expected in the short term.

With the tariff rate reduced to 15%, Hyundai Motor and Kia are each expected to recover annual operating profits of 2.4 trillion won and 2 trillion won, respectively. Next year, not only is there an expectation that the current operating profit consensus, which has been on a downward trend, will turn positive, but there is also a strong possibility that the annual sales target, which increased by only 1.5% this year, will be raised.

Based on this year, the operating profit consensus for Hyundai Motor stands at 12.5 trillion won. If the 15% tariff is applied starting next month, operating profit is expected to improve by about 400 billion won in November and December, and by 2.4 trillion won in 2026. The full-year operating profit consensus for both this year and next year is also expected to be raised to 12.9 trillion won and 14.3 trillion won, respectively.

Kia is expected to see a similar increase in its operating profit consensus, rising from 10.2 trillion won to 10.6 trillion won this year, and from 10.2 trillion won to 12.2 trillion won next year. Although the situation varies by company, parts suppliers with a high rate of US CKD (completely knocked down) procurement for domestically produced vehicles are also expected to see improved results alongside finished car manufacturers.

With tariff uncertainties resolved, Hyundai Motor's share buyback and cancellation are also expected to proceed swiftly. To achieve a total shareholder return (TSR) of 35%, the company is likely to announce a share buyback and cancellation plan worth about 1.3 trillion won. Unlike Kia, which completed its share buyback after announcing it early this year, Hyundai's larger scale has delayed its announcement. Depending on the announcement, the scenario of strengthening group-wide shareholder return policies and the inevitable restructuring of the corporate governance structure after the passage of the Commercial Act amendment is gaining traction, which could drive up stock prices.

Yoo Jiwoong, a researcher at Daol Investment & Securities, stated, "Achieving the 35% total shareholder return announced last year can be seen as the first milestone," adding, "With the possibility of profit growth next year, the corporate value of the entire Hyundai Motor Group is expected to normalize rapidly."