Kia And Hyundai's Domestic Sales Remain 'Sizzling;' Is It Time To Buy?

• KJ Hwang, a South Korea-based analyst for CIMB, said that domestic momentum for KIA MOTORS CORP ORD KIMTF and HYUNDAI MOTOR CO LTD HYMLF remains "sizzling."
• Hwang noted that the two domestic automakers combined for 738k units of sales, marking a six percent year over year increase and a two percent month over month increase.
• The analyst added that ‘strong domestic operations' will serve as the ‘mainstay' for topline growth.

Auto investors may find it beneficial to look outside of Detroit's big three for investment ideas. KJ Hwang, a South Korea based analyst for CIMB, maintained a bullish stance on two South Korea based automakers – Kia Motors and Hyundai Motor. According to Hwang, the companies are seeing "sizzling" domestic momentum. The two auto markets combined for sales of 738,000 units (ex-factory sales) in November – marking a six percent improvement year over year and a two percent improvement month over month. In the US, Kia recorded its best November in history as sales rose 1.4 percent from the same month a year ago to 45,553. Similarly, Hyundai reported its best November ever as sales rose 12 percent from a year ago to 60,007. Hwang continued in his note that while overseas (outside of South Korea) incentives may "pressure" margin expansion, a strong domestic operation will serve as the "mainstay for topline growth." Specifically, Hyundai's "normalising market share" and "relieved incentive burdens" offer investors an "attractive" valuation traction in fiscal 2016. The analyst also foresees the "strongest operating leverage" at Kia given a weakened won. At the same time, the company is seeing "still-firm" domestic sales level and higher average selling prices following several model refreshes. However, Hwang cautioned that it may be "still too early" to expect a "genuine" multiple re-rating given a "limited" line-up of green cars and uncertainties surrounding incentives in the US and China. Nevertheless, the analyst sees further upside in the South-Korean listed issues as Hyundai Motor remains Overweight rated with a W190,000 price target (closed at W147,500 at the time his note was released). Shares of Kia were also reiterated with an Overweight rating and W67,000 price target (closed at W52,500).