BUY OR SELL- More laps to go for Hyundai Motor share rally?

* Hyundai hits new high on strong H2 hopes, market share
gain

* Shares up 44 pct YTD vs 14 pct gain in KOSPI

* Rising won, limited capacity, Hyundai E&C may drag shares

By Hyunjoo Jin

SEOUL, Oct 26 (BestGrowthStock) – Shares of South Korea’s top car
maker Hyundai Motor (005380.KS: ) have surged to record highs
this week, fuelled by robust buying by foreign investors and
expectations of strong quarterly earnings.

Hyundai is expected to report a 30 percent rise in its
third-quarter operating profit on Thursday and to post record
earnings in the final quarter of this year driven by surging
demand for its compact models.

Its shares have gained 44 percent this year, more than
triple the 14 percent rise in the broader KOSPI’s (.KS11: ). Have
they risen too fast for comfort?

BUY ON MARKET SHARE AND BRAND

Hyundai, one of the top global performers during the
financial crisis and sales slump that followed, keeps adding
more market share in Europe, China and the United States, aided
by compact cars and its improving brand images.

“Its earnings are good, market share is rising and new
models will continue to be rolled out,” said Kim Young-il, a
fund manager at Korea Investment Trust Management, who holds an
overweight position on the company’s stock.

Hyundai is also gaining an edge over its Japanese rivals as
a surging Japanese yen and recalls by Toyota Motor (7203.T: )
have made the South Korean firm’s cars more appealing to both
penny-pinching consumers and on safety grounds.

Toyota said last week it would recall 1.66 million
vehicles, bringing its total recalls in the past year to about
14 million. [ID:nTOE69K05M]

By contrast, the YF Sonata which competes with Toyota’s
Camry and remains Hyundai’s best-selling model in the United
States, received the highest safety rating from the National
Highway Traffic Safety Administration this month.

“Hyundai’s models compete head to head with Japanese cars
in the U.S… Although the U.S. market is slow, Hyundai’s
market share is growing fast,” said Angela Hong, an analyst at
HSBC.

Despite its growing clout, Hyundai is valued less than its
peers, trading at 8.6 times 2011 estimated earnings, far
cheaper than Toyota’s 15 and Chinese maker SAIC’s (600104.SS: )
13.

Hyundai’s operating profit is forecast to rise 9.5 percent
to a record 916.5 billion won ($819 million) in the current
quarter, fueled by rollouts of new models such as the
redesigned Elantra in the U.S. and new versions of Accent and
Grandeur in South Korea, according to analysts polled by
Thomson Reuters I/B/E/S.

SELL ON SLOWING EARNINGS GROWTH, CONSTRUCTION M&A

Some, however, are concerned that Hyundai’s earnings growth
will slow next year to 7 percent, as a rising Korean won hits
overseas sales and they say limited production capacity could
put a brake on its efforts to raise output sharply.

Hyundai’s factories are already running at nearly full
capacity and the only major expansion plan at the moment is its
Russian plant coming onstream next year. It needs more foreign
plants to counter the impact of a strengthening won.

“Hyundai’s fundamentals remain solid. But its share price
may undergo correction as the won is expected to appreciate
against the dollar next year,” said Kim Young-chan, a fund
manger at Shinhan-BNP Paribas Asset Management. He declined to
disclose his holdings.

BNP Paribas estimates Hyundai’s earnings will shrink by
around 1.2 percent for every 10 won the Korean currency rises
against the dollar. The won (KRW=: ) is forecast to hit 1,023
against the dollar in the fourth quarter of 2011, according to
a Reuters poll (KRFX1: ), stronger than 1,119 at present.

Its likely purchase of Hyundai Engineering & Construction
(000720.KS: ) could also hit the stock. [ID:nTOE69003E]

“The market sees no synergies in its bid… Currently
investors are ignoring the issue because of Hyundai’s good
fundamentals. But once it emerges, Hyundai shares are likely to
turn lower on profit-taking,” said RBS analyst Simon Park.
($1=1119.3 Won)
(Editing by David Chance and Muralikumar Anantharaman)

BUY OR SELL- More laps to go for Hyundai Motor share rally?