Hyundai Glovis, Gloomy 2Q Outlook..."COVID-19 Impact Intensifies"

원본보기 아이콘

[Asia Economy Reporter Minwoo Lee] Hyundai Glovis recorded results in the first quarter that exceeded market consensus, showing a 'solid performance.' However, concerns have emerged that from the second quarter, when the economic slowdown caused by the novel coronavirus disease (COVID-19) is expected to be fully reflected, the company will not be able to avoid poor performance.

On the 26th, DB Financial Investment made this forecast. Hyundai Glovis's first-quarter sales were 4.7029 trillion KRW, and operating profit was 194.9 billion KRW. Compared to the same period last year, sales and operating profit decreased by 2% and 15%, respectively. However, these figures surpassed the market consensus of sales at 4.2 trillion KRW and operating profit at 190 billion KRW.

This was mainly due to an increase in sales of Completely Knocked Down (CKD) products, which account for nearly half of total sales. In February, due to parts supply disruptions caused by COVID-19, overseas plants of Hyundai Motor and Kia Motors began securing safety stock of parts. As a result, CKD sales rose to 2.023 trillion KRW, a 30.2% increase compared to the first quarter of last year.

However, sales in the shipping division recorded 712 billion KRW, down 11.6% from the same period last year. While finished vehicle maritime transport increased by 13.1% to 507 billion KRW due to increased export volumes from client companies compared to the first quarter of last year, bulk carrier sales during the same period fell sharply by 42.6% to 205 billion KRW.

Additionally, net income attributable to controlling shareholders was 161 billion KRW, a 50.1% increase from the same period last year, due to the receipt of 106.5 billion KRW in insurance payments related to a ship accident.

The problem lies in the second quarter. A decline in client order volumes due to the COVID-19 pandemic is expected to intensify. Kim Pyeongmo, a researcher at DB Financial Investment, explained, "Especially, CKD sales, which were a 'star performer' in the first quarter, are expected to decrease by more than 15% year-on-year starting next month as overseas plants of Hyundai and Kia reduce volumes. Due to the economic slowdown in major countries, bulk and domestic and international logistics sales are also inevitably expected to decline compared to the previous year." The expected operating profit for the second quarter is 149.4 billion KRW, which is 26% higher than the same period last year but is expected to fall significantly short of the market consensus of 193.4 billion KRW.

For these reasons, DB Financial Investment lowered Hyundai Glovis's target stock price to 140,000 KRW, the first reduction in about two years since July 2018 when it was 180,000 KRW. The closing price on the previous trading day was 100,500 KRW. However, the investment rating was maintained at 'Buy.' Researcher Kim explained, "While it is expected to maintain the most stable performance within the transportation sector, as of the closing price on the 23rd, this year's forward price-to-earnings ratio (PER) is 7 times, making it undervalued not only among domestic transportation companies but also within Hyundai Motor Group stocks."

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.