Worries About the Economy More Than IRA... Declining Hyundai Motor and Kia Stock Prices

Foreign Investors and Institutions Sell Hyundai Motor and Kia
Investment Sentiment Weakens Amid Recession Concerns... Operating Profit Margin May Slow

[Asia Economy Reporter Hwang Yoon-joo] Despite expectations for strong fourth-quarter earnings, Hyundai Motor and Kia stocks are struggling. The Federal Reserve's tightening stance has heightened recession concerns, leading to forecasts of deteriorating profitability.

According to the Korea Exchange on the 22nd, Hyundai Motor's stock price fell 4.2% from 165,500 KRW to 158,500 KRW over the past month (November 22 to December 22). Kia also dropped 2.6%, from 65,200 KRW to 63,500 KRW.

Looking at the stock price trend for this year (January 3 to December 22), a clear downward trend is evident. Hyundai Motor slid 24.7% from 210,500 KRW to 158,500 KRW, while Kia fell 23.2% from 82,600 KRW to 63,400 KRW.

Although expectations for Hyundai Motor's fourth-quarter earnings have increased, the supply and demand situation remains negative. Over the recent month (November 22 to December 22), foreign investors and institutions sold a net 28.99 billion KRW and 155.747 billion KRW worth of Hyundai Motor shares, respectively. During the same period, Kia was also sold off by 60.712 billion KRW and 113.639 billion KRW by foreign investors and institutions, respectively.

The main reason foreign investors and institutions have been selling is due to recession concerns. The key issues for the automotive industry in 2023 are the potential demand slowdown caused by a recession and worsening cash flow. Lim Eun-young, a researcher at Samsung Securities, explained, "The decline in Hyundai Motor's stock price is more influenced by the consensus that global automakers' operating profit margins will fall back to around 5% due to recession and high interest rates, rather than concerns over the Inflation Reduction Act (IRA) raised by some."

At the December Federal Open Market Committee (FOMC) meeting held on the 14th (local time), the U.S. real GDP growth forecast for next year was sharply lowered from 1.2% to 0.5%. The unemployment rate forecast was also raised from 4.4% to 4.6%, effectively acknowledging an economic slowdown. Hyundai Motor·Kia's domestic factory export ratio reaches approximately 59.5% to 62.4%. A demand slowdown due to a recession would impact sales.

Additionally, as the FOMC announced it would maintain its tightening stance, there is a retreat in investments in electrification and autonomous driving technologies, which had been heavily invested in since the COVID-19 pandemic.

Jang Moon-soo, a researcher at Hyundai Motor Securities, analyzed, "The base effect of pent-up demand caused by supply disruptions has been delayed until the second half of 2023," adding, "Along with recession concerns, profit momentum is expected to slow down." He further evaluated, "In the short term, stock price volatility may increase due to year-end 2022 electric vehicle sales performance, escalation of the Ukraine war, and potential revisions to the IRA, but considering the earnings growth phase due to the base effect in the first half of next year, the current stock price is undervalued."

Meanwhile, according to FnGuide, Hyundai Motor's fourth-quarter operating profit estimate is 2.8844 trillion KRW, an 88.5% increase compared to the same period last year. Sales are expected to rise 22.9% to 38.155 trillion KRW, and net profit is forecast to surge 255.6% to 2.4944 trillion KRW. However, operating profit for the first quarter of next year is projected to increase 35.1% year-on-year to 2.6066 trillion KRW, while second-quarter operating profit is expected to decline 6.11% to 2.7978 trillion KRW.

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