Hana Securities said on Oct. 20 that HL Mando's profitability will improve if its tariff burden eases. It analyzed that, despite top-line growth in operating profit, an increase in tariff expense will likely leave results slightly below the previous outlook. Accordingly, it maintained a buy rating and a target price of 50,000 won. HL Mando closed the previous trading day at 35,400 won.
Song Sun-jae, an analyst at Hana Securities, said, "HL Mando is expected to see solid growth over the next few years through previously booked orders and increased supply of new products," adding, "Supply of the IDB2 product is increasing, and supply of ADAS and EMB for North American OE will join from the end of this year."
Song added, "As the share of related electronic components rises and the burden of research and development eases after new product supply begins, profitability is expected to improve," and "If the newly added tariff expense this year stabilizes through cost‑sharing with customers and lower tariff rates, the related effects will show up in earnings."
According to Hana Securities, HL Mando's third-quarter sales and operating profit are projected at 2.34 trillion won and 91.8 billion won, respectively. Sales in Korea are expected to rise 6% on increased customers, exports, and a stronger exchange rate, and North American sales are also analyzed to increase 16% year over year on higher production by customers and supply of IDB2 parts.
Sales in India and Europe are also expected to increase 8% year over year on greater supply to local OE. In contrast, sales in China are forecast to rise only 2% due to sluggish market demand and weak performance by customers.
Song explained, "Operating profit will benefit from a higher share of electronic components and a stronger exchange rate, but as U.S. tariff expense starts to be reflected this year and negotiations with customers on reimbursement of the tariff expense are delayed, profitability is estimated to decline from the previous quarter and from expectations."
Song said, "Typically, development costs are recouped as profit through reimbursement from customers or increased deliveries after mass production of new products, but with many recent new product launches, short-term burdens have grown and related recovery has been delayed, which is why the share of research and development has risen," adding, "This year, the increase in development costs is expected to be as low as 3%, bringing the ratio down to 5.2%. If the unexpected tariff expense declines, we judge that the stabilization of the fixed-cost structure can lift margins."