[Click eStock] "Auto Parts Makers See Earnings Momentum Weaken as Tariff Impact Begins"

Hana Securities forecast on July 22 that small and mid-sized auto parts companies are likely to see weaker earnings momentum in the second half of the year due to the impact of tariffs and other factors.

Hana Securities analyzed that the effects of U.S. auto tariffs have begun to be reflected since May. Song Sunjae, a researcher at Hana Securities, stated, "Due to a slowdown in production by the industry and client companies, auto parts makers are expecting low growth in existing volumes and are highly sensitive to profit fluctuations related to price factors such as selling prices and exchange rates, as well as cost factors." He explained, "Ahead of the imposition of U.S. tariffs on imported automobiles and parts, companies responded by front-loading shipments to the U.S. in the first quarter, but since May, both direct exports and CKD exports have been affected by the tariffs."

He added, "Currently, the tariffs are being reflected as part of the cost of goods purchased by local subsidiaries, but starting from the third quarter, as the related volumes are recognized as sales, these will be accounted for as expenses." He continued, "Companies are trying to offset the increased costs by raising selling prices, but there is still uncertainty regarding the tariff rates, and it is not easy to gain bargaining power with clients, so recovery is expected to be limited."

Researcher Song advises that, given the weakening earnings momentum for small and mid-sized auto parts companies due to the U.S. tariffs in the second half, investors should focus on companies that demonstrate strong growth, profitability, or financial structure, as well as those that return value to shareholders.

He emphasized, "At this point, investment in small and mid-sized auto parts companies should be limited to those with clear new revenue sources driving growth, or those with solid profitability and financial structure that can withstand the tariff burden. It is also necessary to focus on companies that can reduce the impact of tariffs over the medium to long term through local investment in the U.S."

He added, "Companies that can strengthen shareholder returns based on outstanding financial structure will also be good alternatives." From this perspective, he suggested SL, PHA, SNT Motiv, DN Automotive, Korea Electric Terminal, Sebang Battery, Motonic, and Daewon Industrial as preferred choices among small and mid-sized auto parts makers.

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