20170110-三星证券-Ready_for_rebounds_after_mixed_4Q16_results_17页_655kb

Sector Update Summary

Core Content

This document provides an analysis of the Korean automotive and related sectors, focusing on the performance of major companies in the fourth quarter of 2016 (4Q16) and their outlook for 2017. It highlights the mixed results across automakers and parts/tire manufacturers, emphasizing the impact of currency fluctuations, production adjustments, and market demand changes.

Main Points

Automakers: Mixed 4Q16 Results

• Hyundai Motor (HMC) and Kia Motors both faced challenges in 4Q16, including:

  • Labor strikes lasting through mid-October.
  • Warranty provisioning increased due to the KRW weakening against the USD by 9.7% q-q.
  • Domestic sales declined, with HMC down 17% y-y and Kia down 7.6% y-y.
  • US incentive hikes affected sales performance.
  • Inventory levels were lower than in previous years, setting the stage for recovery in 2017.

• Despite these challenges, both companies are expected to meet their full-year global sales targets, with HMC likely to perform slightly better than Kia.

• Global sales growth is expected to be 4-5% for HMC/Kia in 2017, driven by low inventories, capacity additions, and the launch of new models.

• ASP (Average Selling Price) is anticipated to recover in HMC's plants in India, Eastern Europe, Russia, and Brazil.

• New vehicle strategies include launching specialized models outside the US and entering the B-SUV and luxury sedan segments, with full SUV lineups planned for 2018.

• China market share is expected to increase for both HMC and Kia due to four new model launches and profits from auto financing affiliates offsetting poor US performance.

• Parts and tire makers are seen as opportunities for recovery, as automakers' sales in China rebounded.

Parts Makers: Strong Performance in 4Q16

• Hyundai Mobis:

  • Sales increased 3.3% y-y and 17.5% q-q to KRW10.31t.
  • Operating profit rose 4.2% y-y and 25.2% q-q to KRW903.6b.
  • Strong performance attributed to Kia's Mexico factory, HMC/Kia's China shipments, and eco-friendly model sales.
  • Aftermarket parts division also saw growth, aided by IT system integration.

• Hyundai Wia:

  • Sales dropped 2.2% y-y but rose 16.4% q-q to KRW2.3t.
  • Operating profit fell 32.9% q-q to KRW84.8b.
  • Missed forecasts, but new Mexico and Seosan plants are expected to turn profitable in 2017 and boost earnings.
  • Machinery business is expected to rebound due to new plant operations and powertrain changes by automakers.

• Hanon Systems:

  • Sales rose 0.4% y-y and 14.3% q-q to KRW1.47t.
  • Operating profit increased 6.7% y-y and 20.7% q-q to KRW128.7b.
  • Strong performance due to China sales growth offsetting euro weakness.

• Halla Holdings:

  • Sales rose 23.6% y-y and 3.4% q-q to KRW261.3b.
  • Operating profit increased 32% y-y and 22.6% q-q to KRW30.1b.
  • Strong results driven by royalty income and equity-method gains from Mando, Mando-Hella Electronics, and Halla Stackpole.

• Mando:

  • Sales increased 8.1% y-y and 14.1% q-q to KRW1.55t.
  • Operating profit rose 15.3% y-y and 19.2% q-q to KRW89.2b.
  • Strong performance due to sales from key clients in China (HMC, Kia, GM, Geely) and disposal gains from Mando Advanced Materials.

• S&T Motiv:

  • Sales and operating profit missed forecasts, with sales down 6.3% y-y and operating profit down 18.6% y-y.
  • Defense sales are expected to recover due to resumption of K2C1 supply.
  • However, business structure changes are needed to sustain growth.

Tire Makers: Margin Pressure and Product Mix Improvements

• Hankook Tire:

  • Sales fell 0.9% y-y and 4.5% q-q to KRW1.58t.
  • Operating profit increased 8.7% y-y but fell 14.1% q-q to KRW260b.
  • Margin squeeze is expected to persist into 1Q17, but the company is optimistic about price hikes in 2Q17.
  • US plant launched in late 2016 is expected to drive sales growth.

• Nexen Tire:

  • Sales rose 3.5% y-y and 0.4% q-q to KRW472.2b.
  • Operating profit fell 9.8% y-y and 8.8% q-q to KRW59.7b.
  • Despite rising raw material costs, product mix improvements are expected to help maintain profitability.

• Kumho Tire:

  • Sales and operating profit both fell y-y, with operating profit down 15.3%.
  • Margin squeeze is expected to continue due to raw material input price hikes.
  • Product price increases are anticipated in 2Q17 to offset costs.

Key Information

• Target Prices and Growth Projections:

  • Hyundai Motor: KRW190,000 (+25%)
  • Kia Motors: KRW46,000 (+13.6%)
  • Hyundai Mobis: KRW350,000 (+26.6%)
  • Mando: KRW350,000 (+34.6%)
  • Hyundai Wia: KRW80,000 (+8%)
  • Hankook Tire: KRW27,000 (+24.1%)

• Currency Movements:

  • KRW/USD: Rose 9.7% q-q to KRW1,207.7/USD.
  • KRW/CNY: Fell 6.4% y-y to KRW169.4.
  • KRW/RUB: Rose 22.2% y-y to KRW19.7.
  • KRW/BRL: Rose 25.0% y-y to KRW371.1.

• Warranty Provisioning:

  • HMC: KRW593b (up 1.6% y-y).
  • Kia: KRW392b (up 2.9% y-y).
  • Both were affected by won depreciation and US incentive hikes.

• Market Trends:

  • SUV demand has increased due to oil price declines.
  • Large-diameter tires are expected to grow at a CAGR of 8% through 2020.
  • Premium tire demand is higher in North America (64%), Europe (21%), and China (16%).
  • HMC and Kia are expected to benefit from product mix improvements in passenger vehicles and SUVs.

Conclusion

The automotive sector in South Korea showed mixed results in 4Q16, with automakers facing inventory pressures and currency fluctuations, while parts and tire makers benefited from increased demand in China and product mix improvements. The outlook for 2017 is positive, with global sales recovery expected for HMC and Kia, and parts makers likely to see rebound due to increased shipments and stronger demand. Tire makers may face margin pressure in early 2017 but are expected to recover with price hikes and product mix optimization.