Hyundai Wia (011210)

Transcription

1 Hyundai Wia (011210) BUY (Reinstate), TP: W206,000 Stock price (Mar 31, KRW) 171,000 Market cap (USD mn) 4,132 Shares outstanding (mn) 26 52W High/Low (KRW) 199,500/127,000 6M avg. daily turnover (USD mn) 18.1 Free float (%) 58.3 Yr to Sales OP EBT NP EPS % chg EBITDA PE EV/EBITDA PB ROE Dec (W bn) (W bn) (W bn) (W bn) (KRW) (YoY) (W bn) (x) (x) (x) (%) 2012A 7, , A 7, ,224 (0.2) F 7, , F 8, , Foreign ownership (%) F 8, , Note: NP and EPS attributed to controlling interest A second harvest is approaching Performance 1M 6M 12M Absolute (%) Rel. to Kospi (%p) MF PE trend 18.0 (X) (W' 000) MF PE (L) price (R) Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Reinstate coverage with BUY and TP W206,000: We reinstate coverage of Hyundai Wia (Wia) with BUY and a TP of W206,000. Our TP equals 11.0x 12MF PE that is 10% above the historical average of 10.0x but discounted to the global parts makers average of 15.0x. As Wia s top line should continue to grow through 2016, we apply a 10% PE premium to the historical average. Wia enjoys a very stable order inflow with sales mostly to Hyundai Motor (Hyundai) and Kia Motors (Kia). But given that Wia s own technology is not very advanced, it is hard to justify a similar PE as the global auto parts makers. Core powertrain components to help maintain fat margins: Wia is Korea s only engine manufacturer ( sales weighting) and it also makes various core powertrain components such as transmissions (19%, mostly transfer cases) and constant velocity joints (CVJ, 9%). Backed by a product lineup comprising mostly such core components, Wia s auto parts division that accounts for 80% of sales should be able to maintain a more than 8% OPM. Also for global parts makers, companies that make both engines and transmissions boast a better OPM (2012 OPM 8.1%) than the average (6.1%). Machinery division passing a trough: In addition to auto parts, Wia s machinery business that delivers of sales should pick up in With Hyundai and Kia adding plants abroad, the machinery division s sales spiked 34% in 2010, 17% in 2011 and 10% in However, as Hyundai and Kia s top-line growth lost steam and poor industry conditions were prolonged, sales shrank 23% in But in 2014, new order receipts should rise 11% YoY to W1.6tn (W1.45tn in 2013) backed by 1) better market conditions for machine tools and 2) Hyundai building a fourth plant in China. Jin Woo Kim, CFA jinwoo.kim@truefriend.com Sung Moon Suh sungmoon.suh@truefriend.com Won Joon Choi wonjoon.choi@truefriend.com Sustained top-line growth: Wia is adding powertrain capacity in Korea and China, which bodes well for the mid to long-term growth outlook. While accumulated capacity buildup for engines, transfer cases and CVJs was 24%, 24% and 21%, respectively, over , it should continue to add 28%, 30% and 6% over In addition, the company s turbocharger plant to open in 2H15 in Seosan, South Chungcheong province (a 51:49 JV between Wia and Japan s IHI Corp.) has huge growth potential. The plant will have an initial production capacity of 250,000 units p. a. with a plan to expand capacity to 1mn through Risk factors time to choose a specialty: Compared to its top-line growth, Wia has made little progress in establishing its own business area. At present, Hyundai and Kia are mostly leading the development in engine technology while it is not easy for Wia to secure other original equipment (OE) orders for engines given their unique nature. Moreover, Wia needs to redefine its role in transmissions with affiliates Hyundai Powertech shifting focus from automatic to continuously variable transmissions (CVT) and Hyundai Dymos from manual to dual-clutch transmissions (DCT). From a 10-year future perspective, we believe Wia needs to evolve into a company primarily engaged in engines or develop as a powertrain specialist by consolidating the three transmission companies. 15

2 Figure 20. PE band Figure 21. PB band 250,000 (KRW) 14x 250,000 (KRW) 2.5x 2.2x 200,000 12x 200, x 10x 1.6x 150,000 8x 150, x 100,000 6x 100,000 50, , Figure 22. Sales breakdown (2013) Figure 23. OPM by product Machinery 19% 10% 8% (OPM) Automotive Machinery 6% 4% 2% 0% Auto parts 81% -2% -4% 1Q10 4Q10 3Q11 2Q12 1Q13 4Q13 3Q14F Table 6. Auto parts capacity outlook (mn units) F 2014F 2015F Engines Korea China CVJ Korea China India Transmissions Transfer cases DCT Growth Engines - 12% 14% 6% 22% CVJ - 13% 8% 4% 2% Transfer cases - 13% 11% 0% 30% 16

3 Table 7. Wia plants by region Country Region Type Products Ownership Korea Changwon 1 Machinery Machine tools, industrial tools, aviation parts Changwon 2 Auto parts Transmissions Changwon 3 Auto parts CVJ Ansan 1 Auto parts Chassis modules Ansan 2 Auto parts Tire modules Gwangju Auto parts Chassis modules Seosan Auto parts Engines, tire modules Pyeongtaek Auto parts Engines Ulsan Auto parts Body assembly Hyundai Metia Auto parts Auto parts 51% Wia Magna Powertrain Auto parts Auto parts 50% China Jiangsu Auto parts, machinery CVJ, machine tools 100% Shandong 1 (Hyundai Wia Automotive Engine) Auto parts Engines 30% Shandong 2 (Hyundai Wia Motor Dies) Machinery Dies 40% US New Jersey Machinery Machine tools 100% Europe Germany Machinery Machine tools 100% India Chennai Auto parts Auto parts 100% Note: For Shandong 1, Hyundai, Kia and a Chinese public firm hold the remaining stakes (22%, 18%, 30%); For Shandong 2, Wia s Jiangsu subsidiary holds the rest Figure 24. Global turbocharger market share (2012) Figure 25. Transmission affiliates in Hyundai-Kia Automotive Group Others Honeywell 40% Manual transmission Mitsubishi Heavy BorgWarner Automatic transmission CVT Manual transmission DCT Source: KARI, Korea Investment & Securities Table 8. Quarterly earnings and key assumptions (W bn) 1Q13 2Q13 3Q13 4Q13 1Q14F 2Q14F 3Q14 4Q14F F 2015F 2016F Sales 1,780 1,847 1,692 1,773 1,792 1,895 1,838 1,941 7,092 7,466 8,124 8,693 OP OPM 6.3% 7.1% 8.2% 8.2% 7.5% 8.1% 7.0% 8.0% 7.5% 7.7% 7.8% 7.9% EBT NP Sales (% YoY) -2% 8% 11% 8% OP (% YoY) 1% 5% 9% 7% NP (% YoY) 0% 11% 12% 9% Key assumptions Auto parts sales 1,421 1,480 1,341 1,503 1,446 1,506 1,506 1,566 5,745 6,025 6,510 6,949 Machinery sales ,347 1,441 1,614 1,743 Auto parts OPM 6.7% 7.5% 8.5% 8.7% 8.0% 8.5% 7.3% 8.2% 7.9% 8.0% 8.1% 8.2% Machinery OPM 5.0% 5.7% 7.1% 5.2% 5.4% 6.4% 5.8% 7.1% 5.8% 6.2% 6.5% 6.5% 17

4 Balance sheet Current assets 2,789 2,769 2,915 3,172 3,394 Cash & cash equivalents Accounts & other receivables 1,533 1,374 1,446 1,574 1,684 Inventory Non-current assets 1,785 2,091 2,453 2,854 3,330 Investment assets Tangible assets 1,398 1,588 1,923 2,278 2,713 Intangible assets Total assets 4,573 4,860 5,368 6,026 6,724 Current liabilities 1,790 1,535 1,558 1,670 1,777 Accounts & other payables 1,437 1,320 1,390 1,512 1,618 ST debt & bonds Current portion of LT debt Non-current liabilities 901 1,014 1,023 1,038 1,052 Debentures LT debt & financial liabilities Total liabilities 2,691 2,549 2,581 2,709 2,829 Controlling interest 1,833 2,255 2,722 3,243 3,809 Capital stock Capital surplus Capital adjustments Retained earnings 1,465 1,869 2,320 2,824 3,373 Minority interest Shareholders' equity 1,882 2,311 2,787 3,318 3,894 Income statement Sales 7,021 7,092 7,466 8,124 8,693 COGS 6,197 6,272 6,566 7,142 7,636 Gross profit ,057 SG&A expenses Operating profit Financial income Interest income Financial expenses Interest expenses Other non-operating profit 25 (2) (2) (2) (2) Gains (Losses) in associates, subsidiaries and JV Earnings before tax Income taxes Net profit Net profit of controlling interest Other comprehensive profit (25) Total comprehensive profit Total comprehensive profit of controlling interest EBITDA Cash flow C/F from operations Net profit Depreciation Amortization Net incr. in W/C (39) (26) (52) (71) (51) Others 97 3 (39) (40) (44) C/F from investing (527) (508) (461) (540) (641) Capex (317) (308) (466) (513) (627) Decr. in fixed assets Incr. in investment (215) (141) Net incr. in intangible assets (38) (64) (33) (41) (41) Others 0 1 (17) (33) (28) C/F from financing (49) (38) (51) (22) (23) Incr. in equity Incr. in debt (36) (25) (30) (0) (0) Dividends (13) (13) (13) (13) (13) Others 0 0 (8) (9) (10) C/F from others (4) Increase in cash 15 (16) Key financial data FY-ending Dec. Per-share data (KRW) EPS 16,262 16,224 18,014 20,093 21,851 BPS 71,238 87, , , ,031 DPS Growth (%) Sales growth OP growth 69.8 (1.9) NP growth 76.0 (0.2) EPS growth 72.6 (0.2) EBITDA growth Profitability (%) OP margin NP margin EBITDA margin ROA ROE Dividend yield Stability Net debt (W bn) Debt/equity ratio (%) Valuation (x) PE PB PS EV/EBITDA Note: K-IFRS (consolidated) 18

5 Guide to Korea Investment & Securities Co., Ltd. stock ratings based on absolute 12-month forward share price performance BUY: Expected to give a return of +15% or more Hold: Expected to give a return between -15% and +15% Underweight: Expected to give a return of -15% or less Korea Investment & Securities does not offer target prices for stocks with Hold or Underweight ratings. Guide to Korea Investment & Securities Co., Ltd. sector ratings for the next 12 months Overweight: Recommend increasing the sector s weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market capitalization. Neutral: Recommend maintaining the sector s weighting in the portfolio in line with its respective weighting in the Kospi (Kosdaq) based on market capitalization. Underweight: Recommend reducing the sector s weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market capitalization. Analyst Certification I/We, as the research analyst/analysts who prepared this report, do hereby certify that the views expressed in this research report accurately reflect my/our personal views about the subject securities and issuers discussed in this report. I/We do hereby also certify that no part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. Important Disclosures As of the end of the month immediately preceding the date of publication of the research report or the public appearance (or the end of the second most recent month if the publication date is less than 10 calendar days after the end of the most recent month), Korea Investment & Securities Co., Ltd., or its affiliates does not own 1% or more of any class of common equity securities of the companies mentioned in this report. There is no actual, material conflict of interest of the research analyst or Korea Investment & Securities Co., Ltd., or its affiliates known at the time of publication of the research report or at the time of the public appearance. Korea Investment & Securities Co., Ltd., or its affiliates has not managed or co-managed a public offering of securities for the companies mentioned in this report in the past 12 months; Korea Investment & Securities Co., Ltd., or its affiliates has not received compensation for investment banking services from the companies mentioned in this report in the past 12 months; Korea Investment & Securities Co., Ltd., or its affiliates does not expect to receive or intend to seek compensation for investment banking services from the companies mentioned in this report in the next 3 months. Korea Investment & Securities Co., Ltd., or its affiliates was not making a market in securities of the companies mentioned in this report at the time that the research report was published. Korea Investment & Securities Co., Ltd. does not own over 1% of Hyundai Wia, Halla Visteon Climate Control, Pyeong Hwa Auto, Mando, S&T Motiv shares as of April 2, Korea Investment & Securities Co., Ltd. has not provided this report to various third parties. Neither the analyst/analysts who prepared this report nor their associates own any shares of the company/companies covered in this report as of April 2, Korea Investment & Securities Co., Ltd. has issued ELW with underlying stocks of Hyundai Wia, Mando and is the liquidity provider. Prepared by: Jinwoo Kim This report was written by Korea Investment & Securities Co., Ltd. to help its clients invest in securities. This material is copyrighted and may not be copied, redistributed, forwarded or altered in any way without the consent of Korea Investment & Securities Co., Ltd. This report has been prepared by Korea Investment & Securities Co., Ltd. and is provided for information purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy. We make no representation as to its accuracy or completeness and it should not be relied upon as such. The company accepts no liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. The final investment decision is based on the client s judgment, and this report cannot be used as evidence in any legal dispute related to investment decisions.