Hyundai Mobis:Adding unaffiliated customers

WHAT’S THE STORY?Conflict defused: Hyundai Mobis shares jumped 5.23% yesterday after Hyundai Motor(HMC) and China’s BAIC said their plant is normalizing at a 15-year anniversarycelebration of their joint venture. Utilization rates are rising ahead of model releases, andthe partners have paid accrued payables to parts suppliers and will not demand price cuts.

    Longer term, Mobis may set up a JV with BAIC subsidiary Beijing HainachuanAutomotive Parts—this could erode its profitability in China but could help it add clientsand reduce the Hyundai Motor Group’s Chinese business risk. With sector boundariesdisappearing and complicated political interests an inherent difficulty in the auto industry,HMG’s vertically integrated structure likely is unsustainable. Mobis already runs itsaftermarket parts business in China in the form of JV.

    Big overseas orders: Mobis shares also benefited from news that the company haswon KRW5.3t of orders from US and Chinese automakers this year—the most it has everreceived from unaffiliated firms. Mobis is to supply a US carmaker with pickup chassismodules and DCSD and ICS electronics, and China’s Geely with audio amplifiers.

    Mobis has historically generated more than 90% of its sales from HMC and Kia Motorsand has been greatly affected by its clients’ earnings performances. We estimate that theoverseas orders will translate into annual sales of KRW1t (3% of its 2016 total) from 2019.

    More importantly, they demonstrate that the company has the ability to diversify itscustomer base and make its earnings more stable.