SEOUL, KOREA- ▶ The 3Q13 earnings beat our estimates. Sales were W1,691.9bn (-2.8% YoY) while OP edged up 2.8% YoY to W139.3bn. As such, Hyundai Wia’s (Wia) OPM rose to 8.2% in 3Q13 from 7.8% a year earlier and beat our 7.6% estimate. The auto parts division posted 6.8% YoY sales growth with OPM rising to 8.5% from 7.7% a year earlier. Machinery sales fell 27.6% YoY and the margin sank to 7.1% from 8% in 3Q12. We attribute the higher OPM to the pleasing product mix improvement and stronger China business.
▶ Wia resumed YoY margin improvement in 3Q13 on expanded capacity for high-margin products. Wia recently expanded its Indian constant velocity joint (CVJ) plant capacity from 400,000 to 800,000. In September, Wia also expanded Nu engine capacity by 100,000 in China, lifting annual engine production capacity to 1.36mn (Korea 0.56mn, China 0.8mn). Backed by Hyundai and Kia’s accelerating overseas plant expansion and the ongoing rise of high-margin products, Wia’s margin improvement should continue.
▶ Its machinery division has been sluggish since 1Q13. However, OPM is recovering from 2Q13 on a QoQ basis.
▶ We maintain BUY with a TP of W220,000 at 11x 12MF PE, the average target for the auto parts sector.
*Source: Korea Investment & Securities Co.
