[Click eStock] "Hanon Systems, Target Price Lowered to 6,500 Won"

Meritz Securities downgraded Hanon Systems' target price to 6,500 KRW on the 10th. The reasons include stagnation in new orders and continued deterioration in profitability.

Hanon Systems recorded sales of 2.4 trillion KRW in the first quarter, meeting consensus expectations. Despite weak demand in the upstream industry, the company maintained a sales scale similar to the same period last year through the effects of a weaker KRW-USD exchange rate and cost recovery.

Operating profit was 65.3 billion KRW and net income attributable to controlling shareholders was 8.3 billion KRW, which were 6.8% and 76.8% lower than consensus, respectively. Operating profit recovered compared to the same period last year thanks to normalization of logistics costs and workforce restructuring, but it fell short of consensus due to the burden of increased amortization expenses of tangible and intangible assets, which are on a structural upward trend.

Net income attributable to controlling shareholders also fell significantly short of consensus due to below-expectation operating profit and increased financial costs caused by deterioration in the financial structure.

Meritz Securities adjusted the 2024 EPS estimate downward by 10.3% reflecting Hanon Systems' worsening cost structure and resulting quarterly earnings weakness. The fair stock price was also lowered to 6,500 KRW by applying Denso's thermal management business segment PER to the adjusted EPS. The investment rating was maintained at 'Hold.'

Researcher Kim Junsung of Meritz Securities stated, "Profitability deterioration is ongoing. The operating profit margin, which was 8.4% in 2018, has continued to decline and shrank to 2.9% in 2023. The operating profit margin for Q1 this year, which recorded earnings below consensus, was 2.7%."

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