Kia motors (000270.KR) (KRW44,950, Apr.14, 2015)
Upgraded to Overweight by JPMorgan but with lower price target of KRW60,000 a share (from KRW64,000).
Kia went through a tough year in 2014, with earnings pressurized by unfavorable FX, weak model cycle and intense competition especially in sedan segment, resulting in increase in marketing spending. We believe such concerns still remain at least in the next quarter or two. That said, the share price seems to be pricing in near-term concerns while overlooking the potential upside from major new model launches as well as favorable USD and RMB. From here, we believe further downside is limited, and upgrade Kia to Overweight with a Dec-15 price target of KRW60,000.
Marketing spending likely to pace downwards on new model launches - Kia has recently launched the new Sorento, and is planning to release KX3 (localized SUV) in China, and the new K5 and Sportage in 3Q15. These models account for almost 40% of global volume, and are the key models which in the past helped Kia gain market share and significantly lower marketing costs, especially in the US market. Kia is targeting 12% sales growth in US and 15% in China along with the new model launches. Near-term earnings may be weak as the company tries to digest old inventories, but we expect a meaningful turnaround in earnings from 2H15 as the new models start to kick in.
EUR, RUB weak, but USD and RMB turned favorable - RUB trended further downwards in 1Q15 (avg. KRW/RUB -24% q-q), while the EUR also turned weak, raising concerns on another set of weak earnings in the near-term.
On a positive note, the USD and RMB, which account for more than 40% of Kia's volume exposure, turned favorable. As Kia is trying to drive double-digit volume growth in the US and China in 2015 with new models, supportive FX in these regions should mitigate concerns on FX impact from Europe.
Upgrade to OW with Dec-15 PT of KRW60,000 - We lower our PT to W60,000 as we revise down our FY15/16 earnings estimates by -17%/-7%, but upgrade to OW on valuation and expected earnings inflection, which we believe the market is not pricing in. In addition to expected improvement in key earnings drivers, we believe there are several reasons that support a better multiple; 1) diversified FX exposure on capacity expansion in Mexico; 2) 2%+ dividend yield with potential upside in the longer-term. Downside risks to our view are: 1) labor issues surrounding ordinary wage litigation, 2) unfavorable FX movement in major regions; 3) weak customer reception of key new models.
-- Wan Sun Park, Scott YH Seo, Sangmyeong Kim (Analysts)
---
To be considered for this feature, please submit material to:Email: asiaresearch@barrons.com
---
Comments? E-mail us at asiaeditors@barrons.com
(END) Dow Jones Newswires
April 14, 2015 00:41 ET (04:41 GMT)
#FX
#Forex
#Kia
#ShiftsUp
#BarronBlog
0 Response to "Kia Shifts Up a Gear -- Barron's Blog"
Thanks for give comment.