[Click eStock] "Kia, Strong Performance Due to Semiconductor Shortage and Excess Demand... Target Price Up"

[Asia Economy Reporter Lee Myunghwan] Meritz Securities announced on the 26th that it maintains a buy rating on Kia and has raised the target price from the previous 100,000 KRW to 110,000 KRW. This is due to the excellent performance achieved amid excess demand caused by the semiconductor shortage.

Meritz Securities pointed out that Kia recorded the highest quarterly sales and operating profit ever in the first quarter of this year. The company's sales and operating profit for Q1 this year were 18.4 trillion KRW and 1.61 trillion KRW, respectively, representing increases of 11% and 49% compared to the same period last year. Compared to market expectations, sales exceeded by 2% and operating profit by 28%.

Although global sales excluding China decreased by 0.5%, the average selling price (ASP) rose by 12%, resulting in the highest quarterly sales ever. Low inventory accelerated the decline in incentives, and favorable exchange rates along with an improved sales mix focused on sports utility vehicles (SUVs) drove the ASP increase. Maximizing profitability through the ASP rise led to an operating profit margin of 8.8%, up 2.3 percentage points from the same period last year, resulting in the highest quarterly operating profit ever. However, net income attributable to controlling shareholders was 1.03 trillion KRW, 9% lower than consensus. This was due to the one-time reflection this quarter of a 226.1 billion KRW equity method loss in Q4 last year from the Chinese subsidiary, which had been treated as a discontinued operation due to capital erosion.

Meritz Securities explained that the excess demand caused by the recent semiconductor supply shortage led to the strong performance. The prolonged semiconductor shortage has reduced production capacity, and the accumulated waiting demand since the COVID-19 outbreak in 2020 has not been fully absorbed, resulting in a continued excess demand situation. Even at this time when demand forecasts for global consumer discretionary sectors are being downgraded amid interest rate hikes and inflation, consumers' long waiting demand for automobiles remains strong. Meritz Securities analyzed that Kia's annual operating profit this year will reach 6.52 trillion KRW, surpassing last year's record high of 4.87 trillion KRW.

Researcher Kim Junsung of Meritz Securities forecasted, "The unique boom in the automobile industry will continue until the extremely low inventory levels normalize to an appropriate scale after semiconductor supply stabilizes."

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