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Hyundai Motors Corporation last update oct 27th, 2020

 

This is not a recommendation or proposal to do anything. The data written in this article is not guarranteed. It is my private personal opinion. I`m not independing as I own a position of HMC shares. 

Hyundai - Kia is one of the biggest car manufacturers in the world with 7.2 million vehicles in 2019. Hyundai Motors is a big part of it with 4.4 mio sold cars in 2019, revenues of 90 bn$  and a net profit of nearly 3 bn$. The companies valuation is 41 bn$(oct.27th, 2020)

Potential motivation to buy Hyundai Motors stock: Hope that the company will go on turning the profit situation. Profits declining for years until 2019 when a rebounce started. The Covid-19 panic might turn it again for an unforseeable period. 

Risk & Chances

After the low sales of Q2/20 (sales fell in Q2/20 by 36% to 0.7 mio vehicles vs. Q2/19) it recovered to 1 mio. vehicles in Q3. The reason for the loss in Q3 were recalls due to motor quality issues. The European manufacturers are hit even worse than asian manufacturers as they face the corona panic and the "climate change" (rigorous CO2 emission limits at the same time). I would not be astonished when the one or other automobile manufacturer in Europe will get in trouble and becoming merged or sold. I would not wonder either if there are a couple of plants closed till mid 2021. 

The worldwide automobile market shrank already 4.4% in 2019 (17). The profits of the automobile manufacturers shrank.  

Hyundai cars sales decreased in this environment from 4,589k to 4,425k cars in 2019, 3.6%. This decrease in sold cars is not an issue as on the other hand the share of bigger more profitable cars increased.

The issue of Hyundai Motors of the last couple of years was the declining profit. The profit was decreasing sharply since 2015. In Q4/2018 Hyundai Motors reported a loss. Since Q1/2019 it looks like Hyundai is making steps to turn the profit situation. The share of higher profitable SUV increased. 

HMC seems to make a turnaround driven by a more profitable product mix as a higher share of profitable SUV rather than in an aggressive cost cutting. It would be even better to work on the product mix and as well an aggressive cost cutting to get a competitive edge vs. the market and pave the way for a profitable future. 

 

The company plans to allocate 30 to 50% of annual Free Cash Flow for shareholder returns. 

Not all decisions of Hyundai Motors follow the business logic. Ex. the company paid in 2014 10bn$ for a real estate in Seoul (2). I do not know the background. Potentially it could be a political background. 

Some Data & Information


Share Price: Oct. 27th, 172.000 KRW 

                                                     Q3/20   Q2/20    Q1/20     2019    Q4/19  Q3/19     Q2/19

Exchange rate KRW/USD:                 1128     1196

Car Sales/mio                                   1           0.7          0.9      4.425    1.2       1.1

Revenues/bn$:                                24.4      18.3        20.5      90.7     23.9      23          23

Operating Profit/bn$:                      -.278     .493      0.701       3.16     1.07     0.320     1.056

Net Profit/mio. $:                           -.167      315        448      2800      730      392        852        

EPS $:                                           -0.62     1.17      1.67     10.4

Die Zahlen wurden jeweils unmittelbar in USD umgerechnet. Deshalb können sich Inkonsistenzen ergeben. 

Interim dividends: Hyundai Motors suspended its interim dividends due to the uncertainty caused by the Covid-19 panic (20).  

2020/01/02 Hyundai Motor Co and affiliate Kia Motors said on Thursday their combined 2019 global sales were 7.19 million vehicles, short of their target of 7.6 million vehicles. The South Korean duo announced a combined 2020 sales target of 7.54 million vehicles before Covid-19 panic. (16)

2019/12/05 Hyundai Motor plans to allocate about a third of its $51.2B investment budget into developing next-gen automobiles over the next six years, according to Nikkei Asian Review. Hyundai has a goal of selling 560K electric cars and 110K fuel-cell vehicles cumulatively by 2025. The new portfolio will kick off in 2021 when an electric version of the Genesis luxury car debuts. With an eye toward profitability, Hyundai expects to boost sales of highly profitable sport utility vehicles and raise its operating profit margin to 7% in 2022 and 8% in 2025. (15)

2019/10/14 Hyundai Motor Co and Kia Motors Corp earmarked a total of 760 mio. $ to settle U.S. class action litigation and address engine-related issues in the United States and South Korea (14)

2019/08/02 Hyundai Motor Co. is transforming its Chongqing Plant 5 in China into an electric vehicle (EV) plant in a bid to reinvigorate its slumping Chinese business. Last year, Chongqing Factory, which can produce 300,000 units a year, sold only 70,434 units in total. (13)

2019/06/07 A federal appeals court restored a $210 million nationwide class-action settlement for hundreds of thousands of owners of Hyundai Motor Co. and Kia Motors Corp. vehicles whose fuel economy estimates were inflated (10).

2019/01/02 Hyundai Motors forcasts a further increase of saled cars in 2019. 

2018/12/17 Actually a class action law suit is prepared against Hyundai Motors on fire accidents with some of its cars (6)

2018/10/25

"Because of temporary cost factors such as expansion of World Cup marketing activities, recall of airbag controllers, and application of new engine diagnostics technology called 'KSDS' in the U.S., operating expenses increased and operating profit decreased," the company explained.(3) This is not really the information I like to read. New engine diagnostic systems and sport marketing events are things that occur regularly.    

 

Number of outstanding stocks: Common stock 206,617,212; 1 st Preferred stock 22,859,122; 2 nd Preferred stock 36,164,489 3 rd Preferred stock 2,448,637 Total 268 mio. shares

Treasury stocks: Common stock 15,359,818 1 st preferred stock 2,445,984 2 nd preferred stock 1,740,855  3 rd preferred stock 48,817 

The Global Automobile Market (Thousand units)

                     Q1 2018       Q1 2019     Q3/19     Q2 2020   Q3 2020  

Korea               427                   414       420         540         460

US                4,111                4,007      4330        2940       3910

Europe          4,289                4,146      3690        2050       3470

China            5,674                5,080      4970        4830       5380

India               853                  837        620          150         730

Global          24,09               22,47        21,11     14,36        19,92

The global automobile demand shrank since Q1/2019 and imploded in q2/20. In Europe the market is still depressed while it seems to recover in Asia strongly. 

 

ROK Location for Automobile Manufacturing

GM put the business location ROK shortly ago in question. High costs an aggressive labor union created a loss of 1.5 bn$ in the last 3 years. Actually there was a strike at Hyundai as the management planned to establish a new plant with lower wages (5). It seems that automobile manufacturing in the ROK faces similar challenges as that of other saturated industrial countries. The German car manufacturers faced similar challenges in the last decades of the last centuries. They outsourced non core activities, established lean structures with plenty of lower paid contractors and lease workers, aggessive purchasing put more volume to lower cost countries. I hope the Hyundai management already smells the napalm. 

Business Location ROK  

the ROK was one of the poorest countries of the world after the war in 1953. With very hard work and discipline they managed to become a developed country with a similar standard of living as South European countries. For ex. the Samsung Electronics memory chip division passed its international competitors by working 6 - 7 days a week achieving a 1/2 year advantage vs. international competition at the turn of the millenium. One specific point in the ROK were always the very aggressive labor disputes. Now it seems as the ROK is very saturated like other established industrial nations. The left government elected 2017 seem to do destructive politics in favor of unions, gender, climate hoax, against nuclear power. The economic growth decreased to the lowest level since 9 yrs. (Q3/18). I hope that the government or at least the potential voters smell the napalm.  

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References

Hyundai Motors IR pages. 

(21) 2020/10/02 https://financialpost.com/pmn/business-pmn/hyundais-u-s-sales-rise-5-in-september

(20) 2020/07/23  https://finance.yahoo.com/news/hyundai-motor-second-quarter-profit-052739425.html?.tsrc=rss

(19) 2020/06/01 https://seekingalpha.com/news/3578880-hyundai-motor-sales-dropped-39-in-may

(18) 2020/05/06 https://finance.yahoo.com/news/hyundai-motor-sales-down-57-081333041.html?.tsrc=rss

(17) 2020/01/22 https://www.hyundai.com/content/hyundai/ww/data/ir/calendar/2020/0000000273/files/hmc-q4-2019-and-annual-business-results.pdf

(16) 2019/01/02 http://marketbeat.com/URL/?URL=https://business.financialpost.com/pmn/business-pmn/hyundai-kia-report-2019-global-sales-of-7-2-mln-vehicles-miss-target

(15) 2019/12/05 https://seekingalpha.com/news/3523742-hyundai-to-invest-heavily-in-next-gen-auto

(14) 2019/10/14 https://finance.yahoo.com/news/hyundai-kia-earmark-760-million-092253890.html?.tsrc=rss

(13) 2019/08/02 http://marketbeat.com/URL/?URL=http://www.businesskorea.co.kr/news/articleView.html?idxno=34410

(12) 2019/07/25 https://www.finanzen.net/nachricht/aktien/hyundai-motor-praesentierte-bilanzzahlen-zum-juengsten-jahresviertel-7754224

(11) 2019/06/20 https://www.finanzen.net/nachricht/aktien/ruecklaeufiges-geschaeft-ey-studie-autoindustrie-rutscht-tiefer-in-die-krise-7629337

(10) 2019/06/07 https://www.autonews.com/regulation-safety/us-appeals-court-upholds-210-million-hyundai-kia-gas-mileage-settlement

(9) 2019/04/24 https://www.hyundai.com/content/hyundai/ww/data/ir/calendar/2019/0000000234/files/19-04-24-hmc-q1-2019-business-results-pt.pdf

(8) 2019/01/24 https://www.finanzen.net/nachricht/nachricht-7058673

(7) 2019/01/02 https://www.finanzen.net/nachricht/nachricht-6983005

(6) https://www.finanzen.net/nachricht/nachricht-6943468

(5) 2018/12/06 https://www.finanzen.net/nachricht/aktien/hyundai-beschaeftigte-protestieren-gegen-plaene-fuer-niedriglohn-fabrik-6910914

4. 2018/10 https://eu.detroitnews.com/story/business/autos/general-motors/2018/04/12/general-motors-south-korea/33770137/

3. 2018/10 http://www.businesskorea.co.kr/news/articleView.html?idxno=26014

1. http://english.yonhapnews.co.kr/business/2018/09/30/0501000000AEN20180930003600320.html

2. https://www.reuters.com/article/us-kepco-realestate-hyundai-motor/hyundai-motors-record-10-billion-bid-for-trophy-property-alarms-investors-idUSKBN0HD06U20140918

 

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