Will Hyundai Motor shares price be corrected?

By Kim Da-ye

Will shares of Hyundai Motor Group’s affiliates continue to ride high?

Hyundai Motor stocks dropped 4.91 percent Tuesday while its sister company Kia Motors’ fell 5.71 percent and that of auto part maker Hyundai Mobis, 0.82 percent.

Shares of Korea’s largest automakers shed a further 0.83 percent Wednesday. Though while Hyundai Mobis lost 1.1 percent, ia gained 1.23 percent.

Analysts said that the downturn would only be temporary because investors want to realize profits from the current high prices.

Investors will return soon because there still remains a lot of room for growth in share prices thanks to record earnings, weakened competitors and continuing launches of new models.

Hyundai Motor shares have risen 189 percent from 134,500 won on May 3 a year ago to 254,500 won Monday while those of Kia Motors have nearly tripled from 27,800 won to 77,300 won.

Hyundai Mobis’ stock has more than doubled from 181,000 to 366,000 won, and Hyundai Wia that produces auto parts and machine tools performed equally well, with its stock rising to 136,000 won from 70,200 won on Feb. 21, the date it went public. Steelmaker Hyundai Steel has also seen its shares soar 53 percent from 89,000 won to 136,000 won.

Hyundai Motor and Kia Motors have long been identified as leading shares that propelled the recent rally of the Seoul bourse although the latest drops in stock prices make investors wonder if leading shares are to change into those in the finance sector.

Hyundai’s affiliates proved with their earnings that the dramatic growth in the share prices weren’t unfounded.

On April 28 Hyundai Motor disclosed that the first quarter’s operating profit had risen 45.6 percent to 1.83 trillion won from a year ago, and the number of vehicles rose 9.2 percent to 919,139 ― 752,466 of which were sold abroad.

Kia Motors’ first quarter performance was even more impressive with its operating profit flying 90.1 percent to 839.9 billion won and the number of sold vehicles by 30.4 percentage points to 619,089.

Due to the earnings surprise, a series of brokerages, both domestic and foreign, raised the target price for Hyundai’s affiliates.

Merrill Lynch raised the target price for Hyundai Motor from 260,000 won to 300,000 won Friday while UBS lifted them from 275,000 won to 320,000 won.

Citigroup hiked it from 250,000 won to 320,000 won while J.P. Morgan did the same from 210,000 to 300,000 won and Deutsche Bank from 300,000 won to 330,000 won.

Most of the local brokerages have also raised the target price above the 300,000 mark with Hyundai Securities taking it as far as 350,000 won.

Kia Motors also received a series of encouraging forecasts with several domestic securities companies suggesting the target price over 100,000 won. Foreign brokerages Merrill Lynch, Citigroup and Deutsche Bank estimated the price at 90,000 won, 93,000 won and 98,000 won respectively.

The target prices reflect investors’ high hopes on earnings. At the IR session held April 28 at the Korea Exchange, Hyundai Motor convinced analysts of its upgraded global status.

Hyundai Motor said, as quoted by Dongbu Securities Analyst Lim Eun-young, that due to high demands, certain vehicle models are on overseas back-order for the next nine months.

Furthermore, the automaker’s procuring of auto parts weren’t overly affected by the earthquake in Japan because Hyundai Motor Group is a vertically integrated conglomerate with 74 affiliates, many of which provide car parts including steel sheets.

Hyundai Motor is also expanding to China’s commercial vehicle market as it signed a joint venture deal with Sichuan Nanjun Automobile last week with the target to produce 160,000 commercial vehicles a year by 2013.

Some even forecast that Hyundai Motor Group, the world’s fifth largest automaker, may become the third largest by the end of the year as damages from the earthquake could slow down the production of Toyota Motor and the Renault-Nissan Alliance.