Auto Parts Stocks Accelerate Price Gains Amid Demand Recovery Normalization

[Asia Economy Reporter Eunmo Koo] As expectations for the normalization of automobile demand recovery expand, the stock prices of auto parts companies are also accelerating their upward trend.

According to the Korea Exchange on the 2nd, Mando's stock price closed at 51,900 won, up 7.01% (3,400 won) from the previous trading day. In particular, it rose to 52,300 won at one point during the session, reaching the highest level since February 7, 2018. Since last month until the previous day, Mando's stock price increased by 46.4%, outperforming the KOSPI's rise of 16.2% during the same period. Hyundai Wia and Hanon Systems also rose 3.18% and 9.30%, respectively, on the previous day, setting new closing price records. These companies have also continued their upward trend, rising 16.4% and 46.9%, respectively, from last month until the previous day.

The earnings and stock prices of auto parts companies had shown relative weakness until recently due to production and sales mismatches caused by the novel coronavirus disease (COVID-19) and global inventory reductions. However, as major countries have successively introduced stimulus measures focused on eco-friendly vehicles, expectations for demand recovery are believed to be influencing the recent stock prices of auto parts companies. Jaeil Lee, a researcher at Eugene Investment & Securities, stated, “Although concerns about the resurgence of COVID-19 still exist, if there are no comprehensive movement restrictions in the future, the gap between finished car manufacturers and parts companies will narrow, allowing parts companies to relatively outperform.”

Strong demand recovery in the Chinese market is particularly raising expectations. In China, the recovery trend is spreading from commercial vehicles to passenger cars, and policy support is also being strengthened. With the launch of various electric vehicles, competition is intensifying, and electric vehicle sales, which had lagged behind Europe, are also rebounding. According to the “New Energy Vehicle Industry Development Plan (2021?2035)” announced by the Chinese State Council on the 3rd of last month, the Chinese government plans to promote point incentives and the replacement of government and commercial eco-friendly vehicles with the goal of achieving a 20% penetration rate of eco-friendly vehicles by 2025. Kwiyeon Kim, a researcher at Heungkuk Securities, predicted, “Considering that China is implementing internal combustion engine suppression policies due to environmental and transportation issues, the growth potential related to electric and hydrogen vehicles is bound to be further highlighted.”

Researcher Lee also said, “Hyundai Motor plans to fully implement strategies to regain market share amid the transition in the Chinese market,” adding, “Since the new car lineup will be reorganized focusing on high-profit models with high product competitiveness rather than low-price strategies, profitability improvements are expected for local partner parts companies in China.” He further added, “Since the electric vehicle strategy in China, which was delayed due to COVID-19, is also expected to be fully activated, it is necessary to pay attention to parts companies benefiting from China.”

The rapid increase in the adoption rate of partial autonomous driving and Advanced Driver Assistance Systems (ADAS) is also considered favorable for parts companies. As the completeness of partial autonomous driving technology improves, consumer preference is also rising, and the movement of finished car manufacturers to move toward Level 3, which can be regarded as full autonomous driving technology, is becoming visible. Researcher Lee explained, “The profitability enhancement strategy through partial autonomous driving and ADAS by global makers is expected to be further strengthened with each new car launch in the future, so it can be seen as an important change as much as the transition to electric vehicles.”

Mando, which has strengths in ADAS, is expected to show remarkable growth in operating profit next year. According to financial information provider FnGuide, Mando's operating profit next year is estimated at 307.7 billion won, a 246.0% increase from this year. Sales during the same period are also expected to increase by 16.6% to 6.4149 trillion won. Pyeongmo Kim, a researcher at DB Financial Investment, said, “With the expansion of ADAS option adoption by consumers, Mando is maintaining high growth in ADAS sales,” and predicted, “As the proportion of electric vehicles increases, the share of high-priced products such as Integrated Electronic Brake (IDB) will also continue to rise.”

This content was produced with the assistance of AI translation services.