Bond: HYNMTR 5.65 26
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Fundamental View
AS OF 15 Nov 2023Hyundai continued to post strong results in 3Q23 and reaffirmed FY23 guidance for double-digit consolidated operating profit growth. We expect the company to finish FY23 with strong 4Q23 results, we believe the profit growth in FY24 will be more challenging, owing to increased availability of light vehicles and rising incentive costs. However, we expect Hyundai to benefit from a broad array of affordable vehicle offerings that are more affordable than vehicles offered by most of its OEM competitors, along with a healthy supply of EV offerings. While both GM and Ford have recently announced a slowing trajectory of its EV transition plans, Hyundai plans to begin EV production at their U.S. plant in 2H24 to help take advantage of IRA tax credits that should help with customer affordability.
Business Description
AS OF 15 Nov 2023- Hyundai Motor Co., Ltd. engages in the manufacture and distribution of motor vehicles and parts. It operates through the following business areas: Vehicle, Financial and Others. The Vehicle division offers motor vehicles. The Financial division provides financing, leasing and credit cards. The Other division includes manufacture of railways. The company was founded on December 29, 1967, and is headquartered in Seoul, South Korea.
- Hyundai Capital America benefits from a support agreement with Hyundai Motor (HMC). HCA investor relations confirmed its support (keepwell) agreement contains a fixed charge coverage provision that it views as particularly strong compared to other peers. HCA’s support agreement stipulates that HMC will make cash contributions to HCA if the fixed charge coverage is below 1.1x, allowing the company to mitigate the impact on capital from losses. Key provisions of the support agreement listed in the business update include (1) HMC agrees it, its controlled subsidiaries, and entities subject to joint control, will own 100% of HCA, (2) HMC will cause HCA and its subsidiaries to maintain positive consolidated tangible net worth, (3) HMC will take all necessary actions to ensure HCA maintains a minimum Fixed Charge Coverage of 1.1x, and (4) Third-party enforceability rights.
Risk & Catalysts
AS OF 15 Nov 2023Hyundai management indicated it expects to achieve annual results near the upper end of its FY23 guidance for revenue and operating profit, both of which it previously raised with its 2Q23 earnings release. It expects consolidated revenue growth of 14% -15% and consolidated operating margin of 8% – 9%, which would represent margin expansion of 210 – 310 bp compared to FY22. Management expects its 4Q23 operating results to be driven by continued growth in key markets and product mix improvement, partially offset by modestly higher incentive spending.
Key Metrics
AS OF 15 Nov 2023KRW bn | FY19 | FY20 | FY21 | FY22 | LTM 3Q23 |
---|---|---|---|---|---|
Revenue | 82,487 | 80,577 | 94,143 | 113,718 | 128,310 |
EBIT | 3,161 | 890 | 5,459 | 8,950 | 15,190 |
EBIT Margin | 3.8% | 1.1% | 5.8% | 7.9% | 11.8% |
EBITDA | 6,993 | 5,076 | 10,015 | 13,998 | 20,339 |
EBITDA Margin | 8.5% | 6.3% | 10.6% | 12.3% | 15.7% |
Total Liquidity | 15,975 | 17,082 | 19,745 | 26,639 | 26,407 |
Net Debt | (6,749) | (4,453) | (5,202) | (11,035) | (15,082) |
Total Debt | 7,628 | 10,920 | 12,569 | 12,940 | 8,685 |
Gross Leverage | 1.1x | 2.2x | 1.3x | 0.9x | 0.4x |
Net Leverage | -1.0x | -0.9x | -0.5x | -0.8x | -0.7x |
CreditSights View
AS OF 18 Jun 2024We maintain an Outperform recommendations on notes of Hyundai Capital America (HYNMTR), Hyundai Capital Services, and Kia Corporation based on relative value, expectations of growing market share in developed markets, sustained strong automotive profitability, its innovative hybrid vehicle and EV product offerings that we believe should fuel further share gains, solid free cash flow generation, resilient automotive profit margins, and positive rating momentum.
Recommendation Reviewed: June 18, 2024
Recommendation Changed: December 20, 2023
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