20171012-三星证券-Weak_sales,_provisioning_behind_likely_losses_8页_451kb

Kia Motors (000270) Summary

Core Content

Kia Motors is currently facing financial challenges, including weak sales in key markets and significant provisioning costs due to an unfavorable ordinary wage ruling. These factors are expected to lead to a net loss in the third quarter of 2017 and a continued net loss in 2018, despite some positive trends in Europe and emerging markets. The company's operating margin is projected to remain near 3% in 2018, and with Hyundai Motor's performance also constrained, Kia needs to take strategic actions to improve its position.

Main Points

• Financial Performance:

  • 3Q 2017: Expected to report a net loss of KRW441b due to weak sales and provisioning.
  • 2018: Likely to be in a net debt position due to poor operating results and large investments.
  • EPS Forecast:
    • 2017E: KRW2,958 (down 10.2% from 2016)
    • 2018E: KRW4,852 (down 15.1% from 2017)
    • 2019E: KRW6,613 (up 36.3% from 2018)

• Valuation:

  • Current price: KRW32,550
  • Target price: KRW36,000 (down 10% from previous estimates)
  • Valuation Ratios:
    • P/E (adjusted): 11.0 (2017E), 6.7 (2018E), 4.9 (2019E)
    • P/B: 0.5 (2017E), 0.4 (2018E), 0.4 (2019E)
    • EV/EBITDA: 5.4 (2017E), 4.3 (2018E), 3.3 (2019E)

• Provisioning Costs:

  • Total estimated costs from wage lawsuits: KRW1.15t
  • Includes unpaid wages of KRW888b and accrued interest of KRW270b
  • The company is likely to book these as labor costs and non-operating expenses

• Strategic Considerations:

  • Inventory Management: Global and US inventories are at 3.0 and 3.9 months, respectively, suggesting a need for production cuts to avoid further losses.
  • Product Differentiation: Kia's lineup is increasingly overlapping with Hyundai's, especially in the SUV segment, reducing its competitive edge.
  • Investment Strategy: The firm may consider selling stakes in non-core affiliates to raise cash, which could be used for future investments.
  • Market Trends: The global automotive industry is evolving toward connected/autonomous vehicles, EVs, and car-sharing, which requires strategic adaptation.

• Company Structure:

  • Subsidiaries: Kia has significant stakes in several subsidiaries, including Hyundai Mobis (16.9%), Hyundai Steel (17.3%), and others.
  • Book Values: These subsidiaries contribute to the company's total book value of KRW10,931b, with a portion of the value attributable to each subsidiary.

• Cash Flow:

  • Free cash flow has been declining, with a drop to KRW660b in 2017.
  • Net cash has also decreased, reaching KRW993b by the end of 2Q17.
  • The firm has been investing heavily, which is affecting its cash flow and net profit.

• Investment Rating:

  • Recommendation: HOLD
  • Target Price: KRW36,000
  • Ratings Distribution: 82.2% BUY, 17.8% HOLD, 0% SELL in the 12 months prior to September 30, 2017.

Key Information

• Market Cap: KRW13.2t/USD11.6b

• Shares Outstanding: 405,363,347

• 52-Week High/Low: KRW42,400/KRW30,200

• Average Daily Trading Value (60-day): KRW35.6b/USD31.4m

• Valuation Summary:

  • Sum-of-the-parts valuation: KRW18,410b
  • P/E valuation: KRW27,654b
  • Average fair value: KRW36,535b
  • Target price: KRW36,000, which is 1.5% below the average fair value

• Industry Context:

  • The automotive industry is undergoing fundamental changes with the rise of connected/autonomous vehicles and EVs.
  • Kia must differentiate itself and adapt to these trends to remain competitive.

• Compliance Notice:

  • The analyst did not own any shares or convertible debt instruments of the company.
  • Samsung Securities' holdings would not exceed 1% of any company's shares if converted.
  • The report is for informational purposes and not an offer to buy or sell securities.
  • It is not tailored to individual investors and does not constitute investment advice.

Summary

Kia Motors is navigating a challenging landscape marked by weak sales, provisioning costs, and the need for strategic restructuring. While it has some positive trends in certain markets, its financial performance is under pressure due to declining net profit and operating margin. The company is expected to face a net loss in 3Q2017 and may need to consider selling stakes in non-core subsidiaries to generate cash. The current target price is KRW36,000, with a HOLD recommendation. The firm must adapt to evolving industry trends to remain competitive and improve its financial standing.