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Country: Korea
Hyundai Motor
- Sector: Manufacturing
- Sub Sector: Automotive
- Country: Korea
- Bond: HYNMTR 5.5 26
- Indicative Yield-to-Maturity (YTM): 4.60%
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Fundamental View
AS OF 20 Dec 2024Hyundai and Kia once again posted solid results in 3Q24, although they were somewhat tainted by an unexpected proactive warranty provision. The warranty provision lowered the combined automotive operating margin of the Hyundai Motor Group (HMG) by 160 bp, although the unadjusted operating margin of 8.5% was still solid. HMG’s LTM operating margin of 10.3% is the highest in our automaker coverage universe.
HMG continues to grow its new energy vehicle business with vehicle sales accounting for ~20% of sales at both Hyundai and Kia. Management has indicated its hybrid vehicle profitability is about the same as ICE vehicle profitability. This is an important point of differentiation between HMG and its peers that we attribute largely to the scale of its new energy vehicle business.
Business Description
AS OF 20 Dec 2024- 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.
Risk & Catalysts
AS OF 20 Dec 2024Hyundai Motor Co. did not update its FY24 financial guidance, which is customary for the automaker, unless it envisions a material change from its previous expectations. Kia, however, raised its FY24 guidance for consolidated revenue and operating profit by 6% and 8%, respectively. Kia now expects its FY24 consolidated operating margin of 12% at the midpoint of the guidance range compared to its previous expectation of 11.9%. Hyundai Motor Co. expects its consolidated operating margin to be in the range of 8% to 9%.
Kia also provided 4Q24 retail sales guidance, which it expects to increase on both a sequential (+9%) and YoY (+5%) basis. The retail sales growth is based on increased production from the expansion of its Hwaseong plant and EV plant expansions, which it expects to increase production of Sorrento (+11k units) and EVs (+11k units). These plants were temporarily shut down in 3Q24 for expansion and conversion activities.
Key Metric
AS OF 20 Dec 2024| KRW bn | FY20 | FY21 | FY22 | FY23 | LTM 3Q24 |
|---|---|---|---|---|---|
| Revenue | 80,577 | 94,143 | 113,718 | 130,150 | 134,400 |
| EBIT | 890 | 5,459 | 8,950 | 15,440 | 14,883 |
| EBIT Margin | 1.1% | 5.8% | 7.9% | 11.9% | 9.0% |
| EBITDA | 5,076 | 10,015 | 13,998 | 20,387 | 19,706 |
| EBITDA Margin | 6.3% | 10.6% | 12.3% | 15.7% | 12.5% |
| Total Liquidity | 17,082 | 19,745 | 26,639 | 26,507 | 21,652 |
| Net Debt | (4,453) | (5,202) | (11,035) | (10,916) | (18,136) |
| Total Debt | 10,920 | 12,569 | 12,940 | 12,940 | 4,184 |
| Gross Leverage | 2.2x | 1.3x | 0.9x | 0.6x | 0.2x |
| Net Leverage | -0.9x | -0.5x | -0.8x | -0.5x | -0.8x |
CreditSight View Comment
AS OF 20 Dec 2024We maintain Outperform recommendations on notes of Hyundai Capital America (HYNMTR), Hyundai Capital Services (HYUCAP), and Kia Corp. (KIA) notes based on relative value, expectations of stable to growing market share in developed markets, sustained strong automotive profitability and margins, its innovative hybrid vehicle and EV product offerings that we believe should fuel further share gains, and solid free cash flow generation.
Recommendation Reviewed: December 20, 2024
Recommendation Changed: December 20, 2023
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Fundamental View
AS OF 22 Aug 2024Hana Financial Group (Hana FG) struggled for several years to make its acquisition of the former Korea Exchange Bank a success, but results improved dramatically in 2015 as revenues grew and cost efficiencies improved.
It has produced particularly strong results since 2020, but its profit growth momentum has slowed down in 1H24. Credit costs will go up marginally in 2H, loan growth will slow down, and more focus will be put on RWA management and capital enhancement.
The group is looking for inorganic growth in its non-bank businesses as it has fallen behind Shinhan FG and KBFG in this area, but has so far shied away from a large acquisition.
Business Description
AS OF 22 Aug 2024- Hana FG is the third-largest financial group in South Korea. From small origins as a finance company in the 1970s, after the 1997 Asian crisis, Hana grew by acquiring three other banks, including the much older Seoul Bank, which had a banking and trust management business.
- Hana FG bought Korea Exchange Bank (KEB) from Lone Star in 2012 after overcoming many hurdles, but due to staff union opposition, it could not merge with Hana Bank until 2015.
- Hana FG's overseas business is smaller than its peers, and is complemented by KEB's extensive international operations. KEB was started in 1967 as a government-owned bank specializing in foreign exchange. It had a leading share in FX transactions and trade finance among Korean banks.
- Hana FG has shown good growth in its credit card and securities non-bank businesses, but is less diversified than its larger peers KB and Shinhan, which have also acquired insurance companies. Its latest acquisition (in 2019) was a 15% stake in Vietnam's state-owned Bank for Investment & Development (BIDV). Last year, Hana FG decided not to proceed with the acquisition of KDB Life Insurance after two months of due diligence.
Risk & Catalysts
AS OF 22 Aug 2024Unlike other FGs, Hana FG reported a decline in credit costs in 2Q24 due to large reversals, but additional provisions are expected in 2H24, in relation to real estate trusts and the new PF viability assessment guideline.
Both the group’s NIM and the bank’s NIM are lower than the respective peers, and both saw larger-than-peers declines this quarter. Returns lagged its peers in 1H24.
Hana FG’s CET 1 ratio is lower than KBFG’s and Shinhan FG’s and is slightly below its 13% target; management plans to improve it in the following two quarters through portfolio rebalancing and RWA management. Hana Bank’s CET 1 ratio is the highest among the major 4 banks.
Key Metric
AS OF 22 Aug 2024| KRW bn | FY20 | FY21 | FY22 | FY23 | 1H24 |
|---|---|---|---|---|---|
| Pre-Provision Profit ROA | 1.07% | 1.07% | 1.10% | 1.11% | 1.14% |
| ROA | 0.61% | 0.74% | 0.66% | 0.59% | 0.69% |
| ROE | 9.0% | 10.9% | 10.1% | 9.0% | 10.4% |
| Provisions/Loans | 0.30% | 0.16% | 0.34% | 0.45% | 0.27% |
| NPL Ratio | 0.40% | 0.32% | 0.34% | 0.50% | 0.56% |
| CET1 Ratio | 12.0% | 13.8% | 13.2% | 13.2% | 12.8% |
| Equity/Assets | 6.7% | 6.8% | 6.4% | 6.6% | 6.5% |
| Net Interest Margin | 1.60% | 1.66% | 1.83% | 1.82% | 1.73% |
CreditSight View Comment
AS OF 29 Oct 2024We have a Market perform recommendation on Hana FG and the bank. Hana FG grew through acquisitions but only in 2015 was it able to merge its two main bank units to form KEB-Hana Bank. Hana’s management has a good record but for some years struggled to extract value from its acquisitions. Its performance for the past few years has generally been strong. Credit costs are much lower than peers but reserve cover is also relatively lower. More focus has been put on RWA management and capital enhancement since 2H24. The group aims to maintain a CET1 ratio of 13-13.5%. Hana Bank’s CET 1 ratio is the highest among the four major banks.
Recommendation Reviewed: October 29, 2024
Recommendation Changed: April 24, 2017
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Search topics about wealth insights and investments.Woori Financial Group
- Sector: Financial Services
- Sub Sector: Banks
- Country: Korea
- Bond: WOORIB 4.875 28
- Indicative Yield-to-Maturity (YTM): 5.108% (Indicative as of March 2)
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Fundamental View
AS OF 22 Aug 2024- Woori FG’s performance record had been less consistent than some of its more commercially focused peers but improved in FY21-22. However, its FY23 performance lagged behind its peers, affected by not only the kitchen sinking provisioning exercise but also uniquely amongst the FGs, taking a hit on its other non-interest income. 1H24 results were decent, partially thanks to not having the ELS compensation issue which hit the other three FGs.
- Asset quality used to be a strength with the lowest NPL ratios and credit costs among the four FGs but has deteriorated since 2Q23, and we no longer see a gap with the other FGs.
- Capital standing is a relative weakness with the CET 1 ratio at 12.0% compared to 12.8-13.6% at peers in 2Q24.
Business Description
AS OF 22 Aug 2024- Woori's predecessor banks were rescued by the Korea Deposit Insurance Corporation (KDIC) following the 1997 Asian Financial Crisis.
- Woori Bank is one of Korea's 'Big Four' commercial banks. It previously owned two regional banks, Kwangju and Kyongnam, but these were spun off in 2014. Woori also sold its stake in Woori Investment Securities and its savings bank and life insurance arms to NH Financial Group.
- Woori set up a HoldCo (Woori FG) in January 2019 to expand into more diversified business lines, particularly investment banking. It used to have a HoldCo, but it was dissolved in 2014 when it was merged with Woori Bank.
- Its main subsidiaries are 100%-owned Woori Card, Woori Financial Capital (auto leasing), Woori Investment Bank and 72.3%-owned Woori Asset Trust. Recently the group acquired Korea Foss Securities, with a plan to merge it with Woori Investment to create a new securities entity. The group is in discussions to acquire an insurance company.
Risk & Catalysts
AS OF 22 Aug 2024- Woori FG was for many years majority-owned by the Korean government via the Deposit Insurance Corporation (KDIC), but KDIC has steadily been selling down its shareholding, and Woori purchased and cancelled the remaining shares in 2024. That said, Woori FG remains a large, systemically important bank with strong potential government backing if needed.
- Woori FG is less diversified than its peers, with most of its earnings coming from the bank and small contributions from the card and leasing businesses. The group has accelerated its M&A pace, acquiring Korea Foss Securities this year and doing due diligence on an insurance target.
- Its CET 1 ratio is ~1% behind the other three FGs. Due to new regulatory guidance on stress buffers, Woori FG has adjusted its CET1 ratio target from 12% to 13%. Given the group’s business expansion plans, the group’s CET 1 ratio is expected to remain behind the peers at least until 2025.
Key Metric
AS OF 22 Aug 2024| KRW bn | FY20 | FY21 | FY22 | FY23 | 1H24 |
|---|---|---|---|---|---|
| Pre-Provision Profit ROA | 0.75% | 0.99% | 1.15% | 1.10% | 1.26% |
| ROA | 0.40% | 0.66% | 0.70% | 0.54% | 0.71% |
| ROE | 5.9% | 10.6% | 11.5% | 8.3% | 10.8% |
| Provisions/Loans | 0.28% | 0.17% | 0.26% | 0.53% | 0.42% |
| NPL Ratio | 0.42% | 0.30% | 0.31% | 0.35% | 0.56% |
| Woori Bank CET1 Ratio | 13.1% | 13.0% | 12.7% | 13.2% | 13.2% |
| Equity/Assets | 6.70% | 6.45% | 6.58% | 6.71% | 6.91% |
| Net Interest Margin Bank + Card | 1.57% | 1.62% | 1.84% | 1.82% | 1.74% |
CreditSight View Comment
AS OF 29 Oct 2024We have an M/P recommendation on Woori FG and the bank. Woori FG was for some years the weakest of Korea’s Big 4 Financial Groups with a less consistent track record of managing risk and returns. Operating performance had shown an improvement for the past few years but disappointed in FY23. 9M24 results have showed some improvement, mainly supported by non-interest income. The group has been seeking opportunities to expand its non-bank businesses. Its new securities entity launched in August and the group is finalizing a deal to acquire Tongyang and ABL. The capital impact of the two transactions is small. Both the group and the bank CET1 ratios are behind peers. KDIC’s stake in the group has been completely sold.
Recommendation Reviewed: October 29, 2024
Recommendation Changed: April 24, 2017
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