Kia shares up 32% this year on strong foreign, institutional buying

Kia Corp. headquarters [Photo by Lee Chung-woo]

Shares of Kia Corp. have soared by more than 30 percent this year, outperforming the gain of its bigger sibling Hyundai Motor Co., on the back of strong institutional and foreign buying.

Shares of Kia closed at 81,000 won ($61.4) on Thursday, significantly up from 61,000 won at the beginning of the year. Its mid-year price earnings ratio stands at 32 percent, which is higher than that of Hyundai Motor at 18 percent.

Institutional and foreign investors are behind the stock surge. Institutions net purchased 266.6 billion won in Kia shares between Jan. 2 and April 5, and foreigners 282.4 billion won during the same period.

The stock has gained momentum as expectations are high that Kia will post strong earnings this year.

According to financial data tracker FnGuide, Kia is projected to post 92.4 trillion won in sales in 2023, up 6.7 percent from a year ago. The automaker’s operating profit is also projected to go up by 14.7 percent to 8.3 trillion won from 7.2 trillion won.

Seven out of the 11 brokerage houses that published reports on Kia this month raised their earnings per share (EPS) estimates.

Kia and Hyundai Motor stocks had lost ground between September and December last year. Analysts had a positive outlook on their earnings but they noted that the strong performance came on the supply shortage after Covid-19. Stocks were affected by the concerns that vehicle demand could decline due to the sluggish economy and product prices will fall once supply issues are resolved.

The concerns, however, partly faded away, after the automakers recently revised up their long-term earnings outlook.

“Kia has raised its estimated global sales of battery electric vehicles (BEVs) for 2026 and for 2030 to 1,005,000 units and 1.6 million units, respectively,” said Shin Yoon-chul, an analyst at Kiwoom Securities Co. The figure is up 24.5 percent and 33.3 percent each compared with the forecast presented last year.

[Photo provided by Kia]

The Kia stock has been pushed up also as the brand value rises.

According to Shinhan Securities Co., the residual value of Kia’s used cars has surged to 55 percent in 2022 from 39.7 percent in 2018, rising to No. 2 among 35 companies, up from No. 26.

A residual value is a price at which a vehicle is sold after being used. It is an important indicator for consumers when buying a new car.

“Among automakers that are original equipment manufacturers, Tesla Inc. and Kia are the only two automakers that make profit from EV sales alone,” said Shinhan Securities analyst Jung Yong-jin. “It is worth noting that Kia expects a larger contribution from EVs in their operating profits target of 16 trillion won by 2030,” Jung added.

Kia also outperformed Hyundai in operating margin and corporate valuation.

The expected operating margin of the automaker this year is 8.9 percent, which is higher than Hyundai Motor’s 6.9 percent. Kia’s price-to-earnings ratio was 5.1 as of Thursday, compared to Hyundai Motor’s 5.7, according to Bloomberg L.P. and Shinhan Securities.

The gap between the two automakers’ market capitalization has also narrowed to 6.2 trillion won, from 8.6 trillion won earlier this year.

Hyundai Motor’s earnings outlook is also positive.

Hyundai Motor is expected to post 148.83 trillion won in sales and 10.34 trillion won in operating profit this year, up 4.4 percent and 5.3 percent, respectively, from a year before, according to FnGuide.

“Despite concerns about a sluggish economy, Hyundai Motor receives a positive outlook thanks to higher global operation rates based on solid demand and improved product competitiveness,” said Cho Soo-hong, an analyst at NH Investment & Securities Co. “Improved product competitiveness and brand awareness are leading to higher global market share. Hyundai Motor also has decent medium- to long-term growth prospects as they strengthen their position in the global EV market with the successful launch of the dedicated EV platform and the expansion of their EV lineup.”

Concerns remain, however, that demand for automobiles may decline as the pace of economic slowdown accelerates. Although Korean automakers have achieved qualitative growth, they cannot remain unaffected by the global economic slowdown. Shinhan Securities projected the global automotive industry to remain bearish in the second half after a bullish period in the first half.