Hyundai Glovis target price raised to 380,000 won on record Q3 earnings outlook

Hyundai Glovis posted second-quarter sales that beat market expectations, and analysts expect earnings momentum to pick up in earnest from the third quarter as fuel surcharge increases and higher freight rates take effect.

Hyundai Glovis shares were trading up 3.66 percent at 212,000 won ($144) as of 9:51 a.m. Friday, according to Korea Exchange.

The company said Thursday that its consolidated operating profit for the second quarter fell 8.1 percent year on year to 495.1 billion won on a preliminary basis. Net profit dropped 26.7 percent to 369.2 billion won.

Sales rose 15.8 percent from a year earlier to 8.71 trillion won, far exceeding the market consensus of 8 percent growth and marking an all-time quarterly record.

Analysts say the second-quarter profit decline was temporary, as higher costs stemming from rising global oil prices have yet to be passed through.

Choi Go-un, an analyst at Korea Investment & Securities, said the drop in operating profit reflected the fact that "cost increases from rising oil prices following the war are passed on through fuel surcharges with a two-to-three month lag." He added that "if the deferred profit to be recognized in the third quarter is included, earnings would have been up 3 to 4 percent — roughly in line with the first quarter."

Analysts agree that Hyundai Glovis's profit momentum will come into focus in the third quarter. Jeong Yeon-seung of NH Investment & Securities said the third quarter is expected to deliver a record operating profit of 574.9 billion won, driven by rising container and car-carrier freight rates and cost settlement effects.

Choi said the finished-vehicle maritime transport segment will more than recover its second-quarter profit decline as fuel surcharge hikes kick in fully. The overseas logistics segment will also see a sharp improvement in profitability as container contract rates for the second half are revised upward to reflect the surge in the Shanghai Containerized Freight Index.

The improved earnings outlook has also prompted a target price upgrade. Hanwha Investment & Securities raised its target price for Hyundai Glovis to 380,000 won from 370,000 won on Friday.

Kim Seong-rae, an analyst at Hanwha Investment & Securities, said visible sales growth and profit improvement in the core business, combined with expectations for a rising stake value in Boston Dynamics, "will translate into higher corporate value for the company."