Recovery in New Car Demand... Driving Forward with Future Vehicles

2021 Industry Outlook ②Automobile, Shipbuilding, Aviation

Performance Market Full-Scale...Growth Expectations
Car, Chemical, Petrochemical Rally Reenactment Major Focus

Polarization Between Major and Low-Cost Airlines
Shipbuilding, Low-Price Orders VS Mixed Performance

[Asia Economy Reporter Park Ji-hwan] Next year, stock prices in the automobile sector are expected to rise further as earnings-driven market conditions take hold. This is due to the recovery of global new car demand and growing expectations for future growth areas such as electric vehicles and autonomous driving. In the airline sector, a stark performance gap is anticipated between large carriers with solid cargo transport bases that can offset weak passenger demand and low-cost carriers that cannot. Regarding the shipbuilding sector, opinions are divided between those who expect the upward trend in orders to continue through next year and those concerned that the recent 'rush orders' are likely low-priced contracts that could boomerang into deteriorating profitability.

◇Will the second 'Cha-Hwa-Jeong' rally be reproduced?= Next year, the automobile sector is expected to see a recovery in global new car demand, which had sharply declined due to the COVID-19 pandemic. Although the spread of COVID-19 remains severe, global economies are anticipated to rebound sharply from next year due to proactive fiscal stimulus and quantitative easing policies by governments worldwide. The key point to watch is whether the domestic automobile stocks will replicate the second 'Cha-Hwa-Jeong (Automobile-Chemical-Oil)' rally as seen in the Korean stock market from 2009 to the first half of 2011. Jang Moon-soo, a researcher at Hyundai Motor Securities, forecasted, "Global automobile demand next year is expected to increase by 10.9% from this year to 84.02 million units," adding, "Strong recovery in demand from China due to base effects in major countries such as Europe and the U.S. and domestic stimulus is expected to drive global market demand."

Amid this positive atmosphere of global market demand recovery, domestic automakers such as Hyundai Motor and Kia Motors are also optimistic about next year’s outlook due to rapid earnings recovery and announcements of new businesses. According to FnGuide, the median earnings forecast for Hyundai Motor over the past month by 10 securities firms shows sales of KRW 115.58 trillion and operating profit of KRW 6.897 trillion for next year. These figures represent increases of 10.7% and 130.6%, respectively, compared to this year’s forecast of KRW 104.3684 trillion in sales and KRW 2.991 trillion in operating profit. The median target stock price for Hyundai Motor is KRW 245,000, which is expected to rise by nearly KRW 60,000 from the current price.

For Hyundai Motor, the value of future businesses is also expected to positively influence its stock price. Im Eun-young, a researcher at Samsung Securities, stated, "Hyundai Motor recently presented a roadmap for electric vehicles, urban air mobility (UAM), autonomous driving, and hydrogen energy with a total investment scale of KRW 60.1 trillion," and evaluated that "compared to global competitors, it has shown advanced preparation for technological changes."

◇Airlines: 'Polarization between FSC and LCC' market... Shipbuilding: coexistence of 'strong orders vs. low-priced orders'= The outlook for the airline sector next year remains bleak, similar to this year. Although COVID-19 vaccinations have begun in some countries, no one can accurately predict the end of the pandemic. Next year, the airline sector is expected to see intensified performance differentiation between FSCs (full-service carriers) and LCCs (low-cost carriers). In particular, LCCs, which heavily depend on passenger business, are unlikely to escape deficits. On the other hand, large carriers are expected to maintain a profit trend due to cargo demand. In the case of Korean Air, it is analyzed that the company will benefit from not only stable earnings defense through robust cargo demand but also from securing a monopolistic position through the merger with Asiana Airlines. The securities industry estimates that Korean Air will generate operating profits exceeding KRW 100 billion each quarter next year. Conversely, LCCs such as Jeju Air, Jin Air, and T’way Air are expected to report deficits ranging from KRW 17 billion to as much as KRW 226 billion.

The shipbuilding industry has recently been writing a turnaround story. Until the third quarter of this year, securing orders was difficult due to the spread of COVID-19, but since last month, there has been a surge in orders. The domestic 'Big 3' shipbuilders?Samsung Heavy Industries, Hyundai Heavy Industries Group, and Daewoo Shipbuilding & Marine Engineering?have secured orders worth 85 vessels totaling USD 11.3 billion (KRW 12.5 trillion) since last month. However, future stock price outlooks are mixed. KB Securities researcher Jung Dong-ik pointed out, "Despite the recent increase in orders, ship prices continue to decline," adding, "This can be seen as shipbuilders engaging in low-priced orders due to a shortage of order backlog, which will eventually boomerang into deteriorating profitability." On the other hand, Daishin Securities researcher Lee Dong-heon said, "Improved ordering conditions due to oil price recovery, expectations for economic reopening following COVID-19 vaccines, and won appreciation are expected to sustain positive ordering trends through the first half of next year."

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