Samsung Securities lowered Kia's target price to 210,000 won from 240,000 won, reflecting second-quarter results that fell short of market expectations and heightened share-price volatility across the auto sector. Still, Samsung Securities kept its "buy (BUY)" rating, expecting earnings to recover in the second half on stronger hybrid (HEV) sales and an improved product mix.
Lim Eun-young, an analyst at Samsung Securities, cut Kia's target price to 210,000 won from 240,000 won, down 12.5%. The target price-to-earnings ratio (PER) was set at 9 times, 10% lower than before. This reflects Toyota's 12-month forward PER level.
Earlier, Kia said second-quarter revenue came to 33 trillion won, with operating profit at 2.6296 trillion won. Revenue rose 12.6% from a year earlier, but operating profit fell 4.9%. Revenue beat market expectations by 2.5%, but operating profit missed by 5.9%.
In the second quarter, sales volume hit a record high, but profitability fell short of expectations. Analyst Lim said, "Amid weakening global auto demand, Kia increased sales, but expanded electric-vehicle sales incentives to compete with Chinese companies in Europe," adding, "As the share of electric-vehicle sales rose, profitability deteriorated."
In fact, incentives expansion and price adjustments created a profit drag of about 178 billion won, and changes in the sales mix added roughly 178 billion won more in profit reduction. In addition, the exchange-rate effect on the provision for sales warranties also had a negative impact. Due to these factors, operating profit excluding the tariff impact is estimated at about 2.7 trillion won, below Hyundai Motor's 2.85 trillion won.
Samsung Securities projected that in the second half, sales growth will begin to translate into profit. It forecast Kia will post 32.4 trillion won in revenue and 2.8 trillion won in operating profit in the third quarter, topping the market consensus of 2.6 trillion won on an operating-profit basis.
In the United States, profitability is expected to improve as sales of higher-margin hybrids increase on expanded production of the Telluride and Sportage hybrids (HEV). By contrast, the European EV incentives that hurt first-half results have limited room for further expansion, and the rise in the EV (BEV) sales share is slowing, improving the product mix. Accordingly, Kia maintained its guidance for annual wholesale of 3.35 million units, retail of 3.31 million units, and operating profit of 10.2 trillion won.