Sector Report

Korean autos – Secular dynamics

by Dohyoung Kim / Aug 20, 2019

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During 2Q19’s result season, Korea’s auto sector posted a beat primarily driven by mix improvement from the virtuous refresh cycle of Hyundai Motors and Kia Motor. Parts-makers like Hyundai Mobis and Mando also benefited from this mix improvement but are also seeing secular trends in electric vehicles and autonomous safety features.

Two noteworthy trends
On an apples-to-apples basis, parts-makers posted stronger revenue growth than auto-makers in 2Q19 due to two secular trends: higher penetration in EVs and autonomous safety features.
For instance, in 2Q19 Mobis’ electrification division reported 82% YoY growth, Hanon Systems xEV-related revenue was up 24% YoY and Mando’s ADAS division saw 35% YoY growth.

Secular angles for parts-makers
Expectations for China are low in the near term and automakers account for 50% of Chinese business via equity income (net profit), while parts-makers are consolidating. In addition, the xEV-related OPM for Mobis and Hanon are lower than the corporate average due to their lower scale. Yet with greater volume, these segments could eventually generate better margins.

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