KB Securities “Kia, limited short-term profit growth… target price ↓”

(Seoul = Yonhap News) Reporter Go Eun-ji = On the 12th, KB Securities lowered its target stock price for Kia [000270] from 250,000 won to 180,000 won, saying, "Profit growth will be limited due to rising material prices."

However, we maintained our ‘buy’ investment opinion, believing that there was no change in our assumptions about the long-term vision. The closing price of the previous trading day was 106,800 won.

Researcher Kang Seong-jin predicted in the report, "Kia's third quarter sales increased by 8.7% compared to a year ago, and operating profit will increase compared to the same period last year due to a sharp drop in sales guarantee costs due to a sharp drop in the exchange rate at the end of the period."

However, he pointed out, “Profit growth is expected to be limited due to increased fixed costs, decreased sales of internal combustion engine vehicles, increased use of electronic components and semiconductor prices, increased material costs, and increased incentive burden due to increased sales of electric vehicles.”

Accordingly, the expected operating profit for the third quarter of this year is expected to be KRW 2.4834 trillion, a 69.8% increase compared to the same period last year and a 5.5% decrease compared to the previous quarter, which is 0.6% lower than the consensus (market average forecast).

Operating profits for this year and next year were expected to be 9.3 trillion won and 8.7 trillion won, respectively. This is a 3.0% and 18.1% lower than KB Securities' previous forecast, and is 7.1% and 18.8% lower than the consensus, respectively.

Researcher Kang judged, “Despite the increase in sales, factors such as rising material costs and worsening mix (composition) are effective in reducing contribution margin after the fourth quarter of this year, and the normalization of sales guarantee costs will act as a factor in reducing profits.”

The main factor in predicting next year's operating profit was a change in exchange rate assumptions (reflection of the strong won).

Nevertheless, the reason he maintained his buy opinion on Kia was because “the current expansion of electric vehicle market share will lead to mid- to long-term profit growth.”

He also said, "We hold shares in key future assets of Hyundai Motor Group, such as Boston Dynamics, Singapore Global Innovation Center (HMGICS), and Hyundai Motor Group Metaplant America (HMGMA), which will become more important in the process of transforming the automobile industry to focus on autonomous driving. As the largest shareholder of Hyundai Mobis, we believe that we can play an important role in the future governance change process."