The author is an analyst at NH Investment & Securities. He can be contacted at [email protected] — Ed.
For Hyundai Autoever’s strategic businesses, medium/long-term growth prospects remain valid, supported by: 1) strengthening the company’s smart mobility capabilities through the merger of subsidiaries; and 2) its status as a major subsidiary of HMG. Growing hopes for a restructuring of HMG’s governance are also positive.
Reinforcement of medium/long-term growth prospects thanks to the expansion of the S/W applications business for vehicles
Hyundai Autoever remains firmly on track to achieve its medium-term business objectives. By 2026, it aims to achieve annual sales of W3.6tn (CAGR of 11%), a cumulative investment of W1.5tn and a DPR of 27%. Supported by the merger of Hyundai MnSoft and Hyundai Autron, the company obtained the capabilities needed for the entire vehicle S/W business. As a result, Hyundai Autoever should be able to focus on expanding vehicle S/W applications, for example, establishing an integrated S/W development platform for HMG and expanding its cloud-related services, navigation services, its accuracy map offers, etc. The company aims to expand its share of cloud-related platform and subscription sales to 23% by 2026.
Growing market interest in a potential governance restructuring at HMG is also positive. Although Hyundai Autoever is located at the bottom of the group’s governance structure, its status as a main subsidiary is reinforced both by a joint investment (10% stake) in the HMG Singapore Global Innovation Center (HMGICS) and by its capabilities of smart mobility (security by fusion).
1Q22 Overview: To post robust and continued growth
Hyundai Autoever is expected to record 1Q22 sales of 509.3 billion W (+43% YoY) and an OP of 20.7 billion W (+80% YoY). By division, SI (sales of 180.3 billion W, +15% YoY) and ITO (229.7 billion W, +15% YoY) are both expected to post double-digit sales growth thanks to the Covid-19 base effect, full-fledged IT investment and cloud infrastructure capacity expansion. Vehicle S/W division sales are expected to grow 11% year-on-year to £99.2 billion, given both the luxury trend and increased adoption of the Mobilgene platform, despite sluggish finished vehicle sales.
Starting in 2Q22, the company’s year-over-year earnings growth is expected to normalize to around 10% as the base effect from the merger of the Vehicle S/W division fades. However, the company should remain on track to meet its sales target of 2.3 billion W in 2022 – we forecast sales of 2,381.1 billion W in 2022 (+15% YoY).