Expanding EV Lineup Will Capitalize On Sustainable Vehicle Demand

Key Takeaways

• Expansion in eco-friendly vehicles and high-margin models is set to drive revenue growth by leveraging consumer demand and improving net margins.
  
• Strategic financial services expansion and shareholder return policies aim to boost earnings and enhance competitiveness through innovation and profitability.
  
• Decreased sales, increased costs, and economic uncertainties suggest potential pressure on Hyundai's future revenue, profitability, and earnings.

Catalysts

Manufactures and distributes motor vehicles and parts worldwide.

• Hyundai Motor Company is strengthening its eco-friendly vehicle lineup, with notable growth in hybrid sales and planned expansion of EV offerings, which could drive future revenue growth by capitalizing on increasing consumer demand for sustainable vehicles.
  
• The increased focus on high-margin vehicles, such as hybrids and premium Genesis models, in key markets like North America and Europe, suggests potential for improved net margins through a favorable sales mix.
  
• Hyundai's strategy to enhance its financial services, including expanding into new markets and innovating with products like battery leases, is expected to support earnings growth by increasing finance division revenue and profitability.
  
• The company's commitment to a robust shareholder return policy, potentially including significant buybacks and a strong dividend program, could positively impact earnings per share (EPS) by reducing share count and distributing profits.
  
• Hyundai has planned significant R&D and CapEx investments aimed at enhancing product competitiveness and scaling production capabilities, which are expected to support sustained revenue growth through innovation and expanded manufacturing capacity.

Hyundai Motor Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Hyundai Motor's revenue will grow by 5.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.8% today to 7.6% in 3 years time.
• Analysts expect earnings to reach ₩15217.1 billion (and earnings per share of ₩55929.19) by about January 2028, up from ₩11500.5 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₩16900.0 billion in earnings, and the most bearish expecting ₩9634.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.9x on those 2028 earnings, up from 4.0x today. This future PE is greater than the current PE for the GB Auto industry at 4.1x.
• Analysts expect the number of shares outstanding to grow by 6.42% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.1%, as per the Simply Wall St company report.

Hyundai Motor Future Earnings Per Share Growth

Risks

• The company's global wholesale and retail sales decreased year-over-year, signaling potential challenges in maintaining revenue growth due to softened demand and weakened EV demand in Europe. This could impact future revenue and net margins.
  
• Operating income decreased by 17.2% year-over-year, largely due to increased incentives and exchange rate volatility, which may persist and continue to squeeze operating margins and earnings.
  
• Increased SG&A expenses, including labor and R&D costs, have contributed to a decrease in operating profit, posing a risk to maintaining or improving net margins and overall profitability.
  
• The negative impact of rising interest rates and geopolitical uncertainties could affect Hyundai Capital's financial performance and profitability, potentially leading to a negative influence on consolidated earnings.
  
• Increased incentives in the U.S. and Europe due to worsening macroeconomic conditions may lead to reduced operating profit margins, which suggests potential pressure on future profitability and earnings.

Valuation

• The analysts have a consensus price target of ₩312300.69 for Hyundai Motor based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₩380000.0, and the most bearish reporting a price target of just ₩235020.64.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₩200640.1 billion, earnings will come to ₩15217.1 billion, and it would be trading on a PE ratio of 7.9x, assuming you use a discount rate of 12.1%.
  
• Given the current share price of ₩205000.0, the analyst's price target of ₩312300.69 is 34.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.