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| James Yoon BNP Paribas analyst |
Hyundai Motor shares are expected to perform strongly based on a positive earnings outlook and its moves to strengthen shareholder value, an industry analyst said.
Its stock recently took a severe beating following its decision to spend $10 billion to purchase a land in southern Seoul for its new headquarters. A weaker yen also negatively affected the company, as it makes Japanese vehicles cheaper in overseas markets.
However, analyst James Yoon at BNP Paribas in Seoul said Hyundai's efforts to improve shareholder returns will help the company boost investor confidence.
"Hyundai Motor has evolved from being a high-growth stock to a deep-value play with proven sustainability of a higher operating margin," Yoon said.
Hyundai and its affiliate Kia Motors recently announced that they will buy back shares worth a total of 670 billion won. Hyundai has been under pressure by its bigger shareholders to improve corporate governance after the land deal negatively affected the stock.
"We think this would raise investor return to 12 percent, close to the past five-year average of a 14 percent payout for Korea Composite Stock Price Index-listed shares," the BNP analyst said.
A one-time share buyback plan is only the first step to improving shareholder-friendly initiatives, and a more definitive shareholder return policy is expected to follow, the analyst said.
Product expansion
Yoon stressed that in addition to its plan to improve shareholder value, Hyundai also plans to boost production capacity in the company's target markets, including China and North America, to help improve investor confidence.
"Despite opening five plants in the past six years, adding 1.8 million units of capacity, global utilization has remained only slightly above 100 percent since 2010 because of capacity constraints. With the fourth plant in China awaiting government approval, there are expectations for a new U.S. plant as well," he said.
When asked about the company's brand value, Yoon said: "Because Hyundai is on track to achieve its goal of producing 10 million vehicles by 2020 with the establishment of overseas plants and introduction of new cars with 25 percent higher fuel efficiency as a result of increased R&D expenditures, the Hyundai brand should continue to gain value."
Management is maintaining a prudent brand-building strategy focused on new-generation product launches to lay the foundation for sustainable long-term growth, he said.
"The renewal of the Hyundai brand product lineup over the next few years should help drive up volume and average selling price growth, offsetting foreign exchange pressures," he added.
However, he cited the weakening yen as the company's main challenge, as it will boost the company's chief Japanese rivals' price competitiveness in overseas markets.
"The challenge lies in sustaining the momentum of brand enhancement gained through attractive value propositions during the past cycle, supported by foreign exchange rates, which may not be as favorable in the future," he said.
"Still, its shares are still cheap in terms of valuation."
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