Brokerage firms at odds on Hyundai Glovis outlook

Brokerage firms are showing sharp divide in the share price outlook of Hyundai Glovis Co., a logistics unit of the Hyundai Automotive Group. The optimistics expect to see a share price rise backed by new businesses and reformed governance structure whereas the pessimistics predict weakened performance on the strong Korean won.

Target prices of both domestic and overseas brokerage firms are coming in between 30% lower and 30% higher than the current share price. Hyundai Glovis closed at 178,500 won ($158), down 5.31% on Oct. 26. 

The South Korean logistics company's share price was in the range of 140,000 won apiece at the end of September but surged to an intraday high of 222,000 won on Oct. 20 riding on the possible revamp of the parent group’s web-like shareholding structure. But this month by Oct. 23, institutional investors unloaded a net 192.8 billion won worth of shares, which lowered the company's share price.

Last Friday, Singapore-based brokerage firm CGS CIMB issued a report adjusting its position from Buy to Sell on Hyundai Glovis, which further hardened investor sentiment as Singapore is the hub of Asia’s logistics and local brokerage firms specializing in shipping and logistics sectors.

CGS CIMB set the target price for Hyundai Glovis at 133,000 won ($117), 29.4% lower than the share price at the time of writing the report. The brokerage firm forecasts the company's Q4 operating profit to float around 176 billion won, 9.2% lower than the market consensus of 194 billion won set by seven domestic brokerage firms.

CGS CIMB set its price on grounds that the company will see a rise in fixed costs on the back of new businesses alongside the likelihood of weakened performance due to the strong Korean won affecting the exchange rate.

“The company’s share price rose over 30% this month in anticipation of a reform in the company’s governance structure, but it is difficult to justify the high valuation of a forward price to earnings ratio of almost 15 times,” the brokerage firm said.

Meanwhile, most domestic brokerage firms expect Hyundai Glovis to see an additional share price boost riding on its new businesses. Hyundai Glovis signed a memorandum of understanding with Korea Gas Corporation to set up a hydrogen production platform after the inauguration of the group's new Chairman Chung Euisun. Also, Hyundai Glovis entered an agreement with LG Chem Ltd. to collaborate on electric vehicle battery rental services.

Among local brokerage firms, Korea Investment & Securities proposed the highest target price at 230,000 won. “The company’s profitability may worsen due to the exchange rate in the fourth quarter, but it will still be in the estimated range,” said Choi Go-woon, an analyst at Korea Investment & Securities. She explained that the company’s stable profit flow and anticipation over new businesses were solid drivers backing shares.

Samsung Securities set its target price at 225,000 won on grounds that the company has potential to play a key role in the Hyundai Automotive Group riding on its business expansion. 

Meanwhile, Shinyoung Securities and KB Securities were circumspect, setting their target prices at 195,000 won and 180,000 won, respectively, The two firms agreed there was no room for additional short-term price growth.

Write to Yun-sang Koh at kys@hankyung.com
Danbee Lee edited this article.