The authors are analysts of Shinhan Investment Corp. They can be reached at yjjung86@shinhan.com and dongho2852.shin@shinhan.com, respectively. — Ed.


Domestic: Focus on product mix rather than sales volume

Domestic auto sales (excluding imported cars) came in at 121,000 units (-10.1% YoY, +1.1% MoM) in June, hit by continued chip shortages and truckers’ nationwide strike. Hyundai Motor recorded domestic auto sales of 60,000 units (-13.0% YoY, -6.1% MoM) and Kia 46,000 units (-8.5% YoY, -1.2% MoM). Shipments out of domestic plants including exports dwindled to 141,000 units (-0.8% YoY, -6.3% MoM) at Hyundai Motor and 112,000 units (-13.0% YoY, -8.7% MoM) at Kia, as capacity utilization rates at domestic plants have yet to return to normal levels. We believe their product mix strategy of focusing on high-end cars is valid for now.

Overseas: Earnings supported by improvements in the US and Indian markets

Shipments out of overseas plants stood at 191,000 units (-5.1% YoY, +10.0% MoM) at Hyundai Motor and 131,000 units (+28.6% YoY, +11.6% MoM) at Kia in June. India again added a boost to overseas auto production after recording lackluster performance in May due to maintenance works. China reported decent production in a long while. In terms of sales, favorable conditions continued in the US market.

Incentive spend (based on TrueCar data), an indicator of profitability in the North American market, remained at the lowest levels for both automakers. Hyundai Motor spent an average of USD543 (-68.5% YoY, -1.5% MoM) per vehicle and Kia USD628 (-73.1% YoY, -4.3% MoM). Sales of electric vehicles, which help measure competitive power in the North American market, came in at decent levels with Hyundai Motor selling 2,853 units of the Ioniq 5 (+935 units MoM) and Kia 2,567 units of the EV6 (+479 units MoM).

Retain OVERWEIGHT; top picks are Hyundai Motor and Kia

Global shipments reached 981,000 units (-1.7% YoY, +7.0% QoQ) at Hyundai Motor and 714,000 units (+4.5% YoY, +7.7% QoQ) at Kia in 2Q22. The results fell slightly short of forecasts made at the beginning of 2Q, but look decent considering negatives at home and abroad such as logistics disruptions, the ongoing Russia-Ukraine war, and the general strike of unionized truckers. The USD/KRW exchange rate averaged KRW1,260 in 2Q, up by KRW138 YoY and KRW55 QoQ. Automakers should be able to achieve high profitability by keeping their sales strategies flexible. We recommend an investment strategy focusing on automakers given that 2Q earnings will also be highly sensitive to product mix and forex conditions.


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