[Click eStock] "Hyundai Mobis 1Q Earnings Shock Due to Logistics Costs... Target Price Downgraded"

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[Asia Economy Reporter Myunghwan Lee] Hi Investment & Securities announced on the 25th that it maintains a buy rating on Hyundai Mobis but lowers the target price from 320,000 KRW to 290,000 KRW due to performance deterioration caused by rising logistics costs.

Hyundai Mobis's sales in the first quarter of this year increased by 15.2% year-on-year to 11.3 trillion KRW, while operating profit decreased by 21.1% year-on-year to 386.8 billion KRW. Compared to Hi Investment & Securities' estimates of 10.1 trillion KRW in sales and 494.5 billion KRW in operating profit, the operating profit figure is lower. Despite a decrease in production volume from major clients Hyundai Motor and Kia, sales increased by about 500 billion KRW each in module assembly and parts manufacturing due to an improved mix centered on SUVs.

However, it is evaluated that the company recorded an earnings shock due to logistics cost reduction performance falling short of market expectations. The company's first-quarter operating profit is 22.8% lower than market forecasts. The decrease in profit compared to the same period last year due to rising logistics costs in the first quarter is estimated to be about 60 billion KRW for modules and core parts and 145 billion KRW for AS parts. Modules and core parts turned to a loss, and AS parts recorded the lowest rate of 18.0% since the first quarter of 2015.

Hi Investment & Securities' analysis emphasizes the need to strengthen logistics cost control. Hyundai Mobis is currently the only company among the top five automotive and auto parts companies by market capitalization that does not provide annual performance guidance, the firm pointed out. It also noted that since the third quarter of last year, Hyundai Mobis has shown the most sensitivity to profit decline caused by rising logistics costs within the industry. Therefore, uncertainty about cost control has been continuously reflected in the stock price.

Researcher Yoonchul Shin of Hi Investment & Securities said, "Although accelerated sales growth is expected this year due to maintaining a high level of average selling price (ASP), sales growth is expected to slow next year," adding, "It is time to resolve uncertainty through a cost-cutting declaration accompanied by specific figures."

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