Korea Autoparts:1Q16review,Mobis remains our preferred play in the sector
Mobis reported solid 1Q16earnings, driven by increased coreparts portion, favourable FX and stable A/S margin
Wia’s OP was down 38.5% given weaker engine supplies toHMC/Kia in China and increased cost on new plants
Maintain Buy on Mobis with unchanged TP at KRW300k;reiterate Buy on Wia but cut TP to KRW124k (from KRW140k)
Hyundai Mobis (012330KS, Buy, TP: KRW300,000, CMP: KRW252,500, impliedupside of 18.8%): Revenue grew 6.8% y-o-y to KRW9.3trn in 1Q16, largely in line withconsensus. Core parts sales had strong growth of 9.2% y-o-y, thanks to the new modelsof higher-end sedans and SUVs at HMC and Kia in the US and China. However, OPM fellby 0.3ppt y-o-y due to: 1) depreciation of emerging market currencies including RMB;2) lower module supply to HMC/Kia in 1Q16and 3) the provision on MDPS recall. Marginat the aftersales (A/S) parts division was solid again at 22.4% due to more favourable FX.Core parts portion rises to 30.4% in 1Q16from 29.7% a year earlier, as more new modelsadopt more options/contents to stay competitive. Mobis seems better positioned thanOEMs to enjoy higher growth from both the module and A/S divisions given: 1) theincreasing portion of SUVs and 2) the launch of hybrid models, improving its mix and ASP.
Hyundai Wia (011210KS, Buy, TP: KRW124,000, CMP:KRW100,500, implied upsideof 23.4%): Revenue fell 7.6% y-o-y to KRW1.8trn in 1Q16, in line with consensus, mainlydue to weaker China engine sales resulting from consumption tax cuts applied to vehicleswith 1.6L engine or below (Wia’s key engine supplies: Nu engines with 1.8L and 2.0Ldisplacement). Auto revenue fell 7.8% y-o-y while the machinery division was slightlybetter with a 6.3% y-o-y fall. Wia achieved 1Q machinery new orders at KRW370bn andguided for recovery in terms of sales and profitability in 2016. The auto division’s OPMwas down at 4.3% (-2.5ppt y-o-y), while machinery margin remained disappointing at 4.4%(-0.9ppt y-o-y) as cost stemmed from new plants increase and factory automation sales tothe new plant in Mexico were removed as an internal transaction. The internal sales willbe completed in 1Q16; we expect margin improvement for the machinery division from2Q16e. With weaker China engine sales in 1Q16, we cut 2016e net profit by 13.3%.
Maintain Buys on Mobis and Wia. Our TP of KRW300,000remains unchanged forMobis while we cut our TP for Wia to KRW124,000(from KRW140,000). We continue toprefer autopart names over OEMs given: Mobis is positioned to enjoy higher contentsper-vehicle and increasing sales of eco-friendly models at HMC/Kia (Ioniq and Niro); andWia is also a beneficiary of increased turbo-charger supply in China (resulting from taxcuts on smaller models with engines below 1.6L). Wia is also a beneficiary of HMC/Kia’scapacity expansion in China and Mexico.