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

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 Korean automakers – Kia Motors and Hyundai Motor.

'Sizzling' Domestic Momentum

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 6 percent improvement year-over-year and a 2 percent improvement month-over-month.

Related Link: Auto Roundup: November U.S. Sales Up Dramatically, Continuing Strong 2015

In the United States, 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.

Looking Ahead

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.

A Word To The Wise

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 United States 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).

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