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Kia Motors Summary Report

Core Content

This report provides an analysis of Kia Motors (000270), including its financial performance, market position, and investment outlook. The report is prepared by Samsung Securities and outlines key financial metrics, performance trends, and strategic changes affecting the company.

Main Points

• Current Status: Kia Motors has passed the worst of its recent challenges, with the resolution of a wage issue in Korea and its Mexico plant becoming profitable.
• Market Performance:
  • The current share price is KRW33,350, with a target price of KRW36,000, indicating a 7.9% upside.
  • The company's market cap is KRW13.5t/USD12.5b, and the average daily trading value over 60 days is KRW38.8b/USD36.0m.
  • The 52-week high and low are KRW41,300 and KRW30,200, respectively.
• Investment Rating: The current recommendation is HOLD, with a rating distribution of BUY (82.2%), HOLD (17.8%), and SELL (0%) over the past two years.
• Performance Trends (One-Year):
  • Kia Motors: -3.1% (1M), -15.0% (6M), -10.2% (12M)
  • Compared to the Kospi: -3.7% (1M), -20.4% (6M), -29.3% (12M)
• Strategic Changes:
  • Product Differentiation: Kia needs to differentiate itself from Hyundai Motor (HMC), which is expanding its SUV lineup.
  • Production Cuts: Kia's global and US inventories were at 2.9 and 3.9 months as of end-October, suggesting the need for production cuts to improve new car momentum in 2019.
  • US Factory: The US factory will produce new models like the Soul, Sportage, and full-sized SUVs, while Santa Fe production is moving to HMC’s Alabama factory.
  • India Plant: Kia is investing KRW725b for 50% equity in an India plant, expected to start production in 2H19, but it may not be a significant catalyst due to slowing global utilization rates.
  • Corporate Governance Overhaul: The company aims to improve its standing within the group, potentially becoming a more equal partner with HMC and attracting investor interest.

Financial Highlights

• Revenue: Expected to grow from KRW52,713b (2016) to KRW58,051b (2019E).
• Net Profit (Adj): Expected to increase from KRW1,439b (2017E) to KRW2,972b (2019E).
• EPS (Adj): Expected to rise from KRW3,551 (2017E) to KRW7,332 (2019E).
• EBITDA Margin: Projected to increase from 4.6% (2017E) to 7.4% (2019E).
• ROE: Expected to rise from 5.3% (2017E) to 9.6% (2019E).
• Valuation Metrics:
  • P/E (Adj): From 9.4 (2017E) to 4.5 (2019E).
  • P/B: From 0.5 (2017E) to 0.4 (2019E).
  • EV/EBITDA: From 5.4 (2017E) to 3.0 (2019E).
• Dividend Yield: Expected to increase from 1.5% (2017E) to 3.0% (2019E).

Key Changes

Corporate Overhaul

• Kia aims to improve its corporate governance and position within the group, potentially becoming a more equal partner with HMC.
• The company is likely to sell stakes in non-core affiliates (e.g., machinery parts subsidiaries) to raise cash, potentially generating KRW1.7t at book value.

Sales and Inventory

• Global Retail Sales: Expected to increase from 2,740,000 units (2017E) to 2,830,000 units (2018E).
• Global Inventory (Months): Increased from 2.9 (global) and 3.9 (US) in end-October to KRW36,000.
• Inventory Trends: Inventory levels are expected to decrease in the future due to production cuts and improved demand.

Cash Flow

• Operating Cash Flow: Expected to increase from KRW3,075b (3Q17YTD) to KRW4,779b (2019E).
• Free Cash Flow: Expected to increase from KRW1,726b (3Q17YTD) to KRW2,279b (2019E).
• Net Cash: Expected to increase from KRW1,733b (3Q17YTD) to KRW2,511b (2019E).

Balance Sheet Highlights

• Total Assets: Expected to increase from KRW50,889b (2016) to KRW57,420b (2019E).
• Total Liabilities: Expected to increase from KRW24,310b (2016) to KRW25,114b (2019E).
• Equity: Expected to increase from KRW26,579b (2016) to KRW32,306b (2019E).
• Net Debt: Expected to decrease from KRW257b (2018E) to KRW-784b (2019E).

Key Financial Ratios

Conclusion

Kia Motors is currently facing challenges in the US market, but it has made progress in Korea and Mexico. The company is expected to benefit from new car momentum in 2019 and improved corporate governance. Despite its growth potential, the stock has not yet reached its target price. Investors should monitor its strategic moves and financial performance closely.