[Click eStock] "Hyundai Wia, Machine Division Deficit... Improvement Needed in China and Mexico"

Hana Financial Investment "Hyundai Wia Target Price Lowered to 84,000 Won"
Needs External Growth... Must Revive in China and Mexico Markets

[Asia Economy Reporter Gong Byung-sun] Hyundai Wia underperformed market expectations in the first quarter of this year. This was due to losses recorded in the machinery division and failure to generate results in the China and Mexico markets. On the 26th, Hana Financial Investment downgraded Hyundai Wia's target stock price from 89,000 KRW to 84,000 KRW, maintaining a 'neutral' investment rating.

Hyundai Wia's first-quarter performance this year fell short of market forecasts. Sales reached 1.85 trillion KRW, a 13% increase compared to the same period last year, while operating profit dropped 68% to 27.4 billion KRW. Thanks to the low base in the same period last year and the sales contribution from the Shandong subsidiary, which was consolidated from the third quarter of last year, the module assembly and core parts divisions grew by 10% and 16%, respectively, meeting market expectations. Additionally, in terms of profitability, the operating profit margin of the automotive parts division recorded 2.5%, exceeding the expected 2.2%.

Nevertheless, the reason for underperforming market expectations was the sluggish machinery division. Sales in the machinery division decreased by 5% year-on-year due to weak performance in the general-purpose machinery and factory automation (FA) sectors. The operating profit margin of the machinery division also recorded -8.6%, worse than the market forecast of -2.5%. Song Seon-jae, a researcher at Hana Financial Investment, explained, "Despite efforts to reduce costs, the impact of a shrinking scale was felt."

To offset the increased cost structure relative to assets, growth in scale is necessary, but the China and Mexico markets are also underperforming. The subsidiaries in China and Mexico recorded sales below expectations as they aligned with their clients' production schedules. Moreover, losses in the machinery division remain a burden. Researcher Song said, "Since last month, inventory in the machinery division has decreased and demand has increased, so growth in scale and reduction of losses can be expected, but there are limits to profit contribution relative to sales," adding, "Improvement in the China and Mexico markets is necessary."

However, sales contributions from new businesses such as thermal management systems for electric vehicles, hydrogen storage module air compressors for hydrogen vehicles, and composite materials for mobility are expected to accelerate starting in 2023. Accordingly, Researcher Song judged, "It is still too early to make additional re-evaluations at this point."

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