Hyundai Motor shares remain in limbo, despite record earnings

By Lee Kyung-min

Shares of Hyundai Motor Group's 12 affiliates remain wildly undervalued, as evidenced by their price-to-book (P/B) ratios averaging below 1, despite operating profits topping the list of the country's major conglomerates for two consecutive quarters as of June, market analysts said Tuesday.

The P/B ratio measures the market's valuation of a company relative to its book value. It is used by investors to identify potential investments and a low P/B ratio means a company's stock price is undervalued compared to the value of its assets.

The P/B ratio for the automotive giant's four peers ― Samsung, SK, LG and POSCO ― far exceeds 1, averaging between 1.7 and 6.56.

The highest ratio of 6.56 was registered by the six affiliates of POSCO, followed by 20 SK Group affiliates (2.36), 16 Samsung affiliates (1.85) and 10 affiliates of LG Group (1.7).

Ten out of 12, or 88 percent, of Hyundai affiliates displayed a P/B ratio of lower than 1. Such a ratio was logged by five out of 10 LG Group affiliates, nine out of 20 SK Group affiliates and six out of 16 Samsung Group affiliates. Only one POSCO affiliate's share had a P/B ratio below 1.

Some say Hyundai Motor Group's record-high earnings during the past six months fan concerns of the subsidiaries shares “peaking out,” whereby their prices fall sharply after reaching a high point.

Hyundai Motor Group's operating profit surpassed 9.6 trillion won ($7.2 billion) in the April-June period of this year, twice the operating profit logged by Samsung Group over the same period.

The figures were in line with a revision made earlier by local brokerages of Hyundai Motor's annual earnings target to 33.69 trillion won this year, far greater than the estimates for Samsung Group at 24.99 trillion won and 12.30 trillion won for LG Group.

However, the changes in the stock price of Hyundai Motor's 12 affiliates were limited to an average of -5.01 percent over the past month.

Stock prices of Hyundai Motor, Kia and Hyundai Mobis ― the big growth drivers of the group ― registered drops of 8.96 percent, 2.81 percent and 2.79 percent, respectively.

More pronounced were drops in the share prices of Hyundai Rotem, Hyundai Glovis and Hyundai Wia, which registered respective falls of 20.84 percent, 5.42 percent and 12.83 percent.

But market analysts say concerns of a “peak out" for Hyundai shares are overblown.

“Hyundai Motor's profitability will not plummet to the level experienced during the beginning of the pandemic a few years ago,” said Daishin Securities researcher Kim Kwi-yeon.

“The brand power and production capacities have since strengthened. This together with Hyundai Motor's price-earnings ratio, or P/E ratio, of 4.7 at a historical low will buffer any further downward pressure in the stock price's trajectory.”

The P/E ratio measures a company's share price relative to its earnings per share and is used to decide whether the stock is overvalued or undervalued.

Kyobo Securities researcher Nam Joo-sin said there are lingering concerns over unionized workers of the automaker striking in the second half, but the collective action will not drag on.

“A summer strike could take place, but it will not continue for long. The firm's fixed cost will be lowered, as bolstered by a greater operation rate of manufacturing facilities and the launch of new vehicle models in the months to come,” Nam said.

Shares of Hyundai Motor closed at 188,400 won, Tuesday, up 400 won, or 0.21 percent from the previous session.