Hyundai Motor and Kia: Why They Can Smile Despite Profitability Concerns in Q2? [Weekend Money]

Hanwha Investment & Securities Raises Target Prices for Hyundai Motor and Kia

Combined Operating Profit for Q2 Expected to Decline Year-on-Year

However, Positive Outlook Driven by New Model Launches and Robotics Business Expectations

Although the combined operating profit of Hyundai Motor and Kia for the second quarter of this year is expected to decline compared to the same period last year, the outlook for their stock prices remains positive due to the anticipated effects of new models in the second half and the increasing recognition of robotics value.

On June 21, Hanwha Investment & Securities maintained its 'buy' recommendation for Hyundai Motor and Kia for the second half of the year, raising their target prices to 7.6 million won and 2.9 million won, respectively. These represent upward adjustments of 15.15% and 18.37% compared to the previous targets. Key drivers cited include a gradual recovery in sales volume and improved product mix through the launch of new models in the second half, as well as the expected reflection of added value from additional stake investments in Boston Dynamics.

The combined sales volume for the second quarter is projected to be 1,829,000 units for Hyundai Motor and Kia, representing a 2.7% decrease from the same period last year. Hyundai Motor's sales volume is expected to decrease by 6.1% year-on-year in the second quarter, due to a slowdown in major markets and the impact of a supplier fire. In contrast, Kia is expected to show a more positive global sales performance than Hyundai Motor, as it minimizes the impact of declining sales by expanding sales of eco-friendly vehicles (xEVs). The combined revenue of the two companies in the second quarter is expected to be KRW 80.8 trillion (a 4.1% increase year-on-year), based on an exchange rate of 1,510 won per dollar, with Kia's growth rate (10.1%) outpacing that of Hyundai Motor (0.4%).

The combined operating profit for the second quarter is expected to decrease by 7.6% to KRW 5.9 trillion. Seongrae Kim, a research analyst at Hanwha Investment & Securities, explained, "There is a base effect this quarter as the impact of the 25% tariff began in the second quarter last year." However, he added, "It is also necessary to consider the effects of rising raw material prices such as metals and oil, increased development costs due to both companies' plans to expand their annual R&D investment this year, and potential negative foreign exchange translation losses on sales warranty costs due to year-end exchange rates." He further anticipated a year-on-year decline in operating margin, with Hyundai Motor's profitability expected to decrease by 1.2 percentage points and Kia's by 0.6 percentage points.

However, earnings are expected to improve in the second half thanks to the launch of new models. Hyundai Motor plans to release new vehicles such as the Avante and Tucson FM in the third quarter, and to begin local production and sales of the Ioniq 3 in Europe. Kia is expected to continue its sales growth through expanded production volume of the North American Telluride, which began mass production in the second quarter, and the start of mass production of the Sportage Hybrid (HEV) at Hyundai Motor Group Metaplant America (HMGMA), as well as an increase in affordable EV sales centered on the EV2 in Europe.

The share price, reflecting expectations for the robotics business, is likely to be validated over time. This is because the operation of the US Robot Training Center (RMAC) will commence in August, marking the full-scale development of humanoid mass production processes, and the establishment of hardware and software supply chains for mass production in 2028 is becoming increasingly visible. Additional equity investment in Boston Dynamics through Hyundai Motor Group's US investment holding company, HMG Global, also serves as a positive factor. Analyst Kim stated, "Momentum is expected for those holding equity in Boston Dynamics, and in particular, Kia's stock—which has not fully reflected its relative robotics value despite strong fundamentals—may receive renewed attention."

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