[Click eStock] "Hyundai Motor, Sales Boom and Exchange Rate Effect... Q3 Earnings Expectations Rise"

[Asia Economy Reporter Kwon Jae-hee] Shinhan Financial Investment maintained its 'Buy' rating and target price of 260,000 KRW for Hyundai Motor Company on the 27th.

Hyundai Motor's operating profit for the third quarter is expected to increase by 10.8% year-on-year to 3.3 trillion KRW. The market's greatest concern in assessing performance is the exchange rate, with the third quarter exchange rate assumed to be an average of 1,334 KRW and an end rate of 1,431 KRW. The significant rise in the average exchange rate is expected to improve export profitability, increasing operating profit by approximately 800 billion KRW. However, the recent sharp rise in the end exchange rate is a negative factor for short-term performance, as foreign currency valuation losses occur among the 10 trillion KRW in provisions. The increase in the end exchange rate is expected to raise the sales warranty provision by about 600 billion KRW. In conclusion, the exchange rate effects are expected to offset each other and not be larger than anticipated.

The important factor is whether the structural boom continues rather than the exchange rate. Sales of high-priced trim models are increasing due to a supply-dominant operating environment and Hyundai Motor's improved product competitiveness, and a price increase for new models through model year changes is also being confirmed. Inventory days in major countries remain at about one month, and U.S. incentives are estimated at 500 USD in the third quarter, down 118 USD from the second quarter. Based on the automobile sales boom combined with the exchange rate effect, third-quarter operating profit is expected to reach 3.3 trillion KRW.

Jung Yong-jin, a researcher at Shinhan Financial Investment, analyzed, "Due to recurring peak-out controversies every quarter and the perception of being a victim of the U.S. Inflation Reduction Act (IRA), the stock is undervalued relative to its performance," adding, "As expectations for third-quarter results rise, a revaluation is expected."

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