[Click-e Stock] "Hanon Systems Sees Improvement in EV Market Conditions... Buy Rating Maintained"

Hanwha Investment & Securities: "Target Price Set at 5,100 Won"

On July 21, Hanwha Investment & Securities maintained its "Buy" investment rating and target price of 5,100 won for Hanon Systems, a thermal management specialist in automotive heating, cooling, and air conditioning components, forecasting that business performance will continue to improve in the second quarter due to the expansion of electric vehicle sales and an increasing proportion of premium models. This suggests a potential upside of 46.1% compared to the closing price of 3,490 won on the 16th.

The second-quarter results of Hanon Systems are expected to meet market expectations. Sales are estimated at 2.97 trillion won, an increase of 4.1% year-on-year, while operating profit is projected at 108.3 billion won, up 68.4% from the same period last year.

Kim Seongrae, a researcher at Hanwha Investment & Securities, stated, "Despite the global demand slowdown and the expiry of the North American Inflation Reduction Act (IRA) subsidy, sales growth is expected to be driven by increased xEV sales in each region. In particular, continued strong growth in electric vehicle demand in Europe, along with increased xEV shipments from major clients such as Volkswagen, BMW, and Mercedes-Benz in the second quarter, will contribute to sales growth."

The researcher also predicted an ongoing improvement in profitability. While there has been a structural rise in costs, such as higher raw material prices and a reduced proportion of R&D cost capitalization, cost-saving activities like raw material, logistics, and labor cost reductions, as well as improvements in operational efficiency, are expected to remain stable. As a result, the operating margin for the second quarter is anticipated to reach 3.6%, a 1.3 percentage point increase from the prior year period.

Regionally, a robust improvement in electrification is projected to continue in the second quarter in Europe, which accounts for over 35% of the company's total sales. Increased sales of premium models such as the BMW iX series and Mercedes CLA are expected to contribute to a better product mix.

In the Americas, while key client volumes may decline due to slowing demand and the expiration of the IRA subsidy, the researcher forecasts that this will be compensated by robust hybrid electric vehicle (HEV) sales for Hyundai Motor and Kia, whose local sales exceed 45%. Moreover, the overall sales trend is expected to turn positive in the second half with the launch of new models.

An additional investment point going forward is the scalability of the thermal management solutions business.

Kim noted, "With the shift toward software-defined vehicles (SDV) such as Level 2+ autonomous driving and increased AI computational processing, thermal management solutions are expected to become essential technologies for 'energy efficiency' in mobility devices. The most imminent catalyst will be whether Hanon Systems secures an order for the eM platform on Hyundai Motor Group's volume EV models, which is expected to be confirmed within the year; this will determine whether the business can expand further into SDV models."

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