[Edaily Reporter Shin Ha-yeon ] On the 23rd, Yuanta Securities Korea upgraded its investment rating for Hyundai Motor ( Hanon Systems(018880)) from “Hold” to “Buy,” citing that profitability improvements driven by strong sales of Mercedes-Benz electric vehicles are gaining momentum. The firm also raised its target price slightly from 4,200 won to 4,300 won.

Kim Yong-min, an analyst at Yuanta Securities Korea, stated, “We estimate second-quarter revenue at 3.046 trillion won and operating profit at 139 billion won,” adding, “Operating profit is 24% above the consensus estimate (112 billion won).” He explained, “A reduction in fixed-cost burdens due to an 11% increase in revenue compared to the first quarter, the recognition of high-margin revenue driven by strong electric vehicle sales among major clients, and foreign exchange gains resulting from the weakening of the won compared to the previous quarter are all contributing to organic profit improvement.”

He cited the expanding share of sales to Mercedes-Benz as a key factor in the improvement in profitability. Analyst Kim analyzed, “Strong sales of major Mercedes models (CLA, GLB, GLC) based on the second-generation EV platform—which are equipped with the company’s thermal management systems—are continuing, and the resulting increase in revenue per vehicle will be a source of improvement in the company’s operating profit margin (OPM) for the second quarter and beyond.” He added, “Combined sales for April and May exceeded the total sales for the first quarter, and the GLB and GLC are also expected to benefit from the new-model effect in the second half of the year.”

In fact, the share of revenue from Mercedes-Benz as a client is also expanding. While Mercedes-Benz accounted for 2% of revenue last year, that figure rose to 4% as of the first quarter of this year, and Yuanta Securities Korea projected that the contribution from high-margin sales would increase further in the second half of the year.

However, financial burdens were still identified as a risk factor for the stock price. Analyst Kim stated, “The burden of put options and the sale of remaining shares by Han & Co. (14.3% stake), the second-largest shareholder, as well as the increase in interest expenses upon refinancing, pose risks from a stock price perspective, regardless of the trend toward improved profitability,” and “Assuming interest rates rise by 2 percentage points due to the refinancing of approximately 370 billion won due in June and September of this year, annual interest expenses could increase by about 7.4 billion won,” he said. However, he assessed that “net profit growth will be possible through sustained repayment based on operating profit.”

Analyst Kim said, “We upgraded our investment rating to ‘Buy’ as we determined that the stock price has reached a ‘buy-on-dip’ zone following a sustained decline since our ‘Neutral’ rating,” adding, “Rather than a groundbreaking re-rating catalyst, the situation now offers increased visibility into profitability improvements and room for upward valuation-driven growth.”