[Click eStock] "HL Mando, Continued Deficit in Korea... Target Price ↓"

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Shinyoung Securities maintained a 'Buy' rating on HL Mando on the 6th despite the fourth-quarter operating profit significantly missing expectations, and lowered the target price to 48,000 KRW.

Moon Yong-kwon, a researcher at Shinyoung Securities, stated, "Excluding one-time costs of 27.5 billion KRW (8.5 billion KRW for obsolete inventory, 8.5 billion KRW for delayed development cost recovery, and 10.5 billion KRW for quality provisions), the operating profit also fell short of expectations by 10%."

On a consolidated basis, the 2023 operating profit margin fell below 4% due to continued losses in Korea and ongoing quality-related expenses. Researcher Moon pointed out the need to confirm recovery plans for Korea's operating rate and profitability.

The profitability variables include the turnaround to profitability of the Korean subsidiary, which appears to have recorded operating losses for 10 consecutive quarters through the fourth quarter, and the occurrence of one-time quality costs. Moon said, "Cost reductions from last year's voluntary retirement program (3 billion KRW annually) and potential reversals of some quality and R&D expenses are positive factors," but added, "Since large-scale costs have occurred every fourth quarter for three consecutive years, this possibility cannot be ruled out this year either."

The gloomy sales outlook of key customers is also a burden. Hyundai Motor and Kia's 2024 sales target growth rate is +1.9%. The sales growth rate for North American EV companies is projected at +20%. GM stated that it will continue to manage new car inventory at 50 to 60 days this year as well, maintaining a conservative inventory policy.

Researcher Moon forecasted, "As the volume growth rate of major customers decreases in 2024, Mando's sales growth rate will also decline from +12% in 2023 to +5% in 2024."

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