Mando: prospects for business expansion remain solid in the medium/long term

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The author is an analyst at NH Investment & Securities. He can be contacted at soohong.cho@nhqv.com. — Ed.

Mando’s 1Q22 results are expected to beat consensus on the back of recovering demand in China and expanding global production at a North American electric vehicle customer. The company’s medium/long term growth strategy is to focus on corporate restructuring.

Growth strategy to materialize through corporate restructuring

Although we adhere to a buy rating, we are lowering our TP on Mando from 69,000W to 63,000W, due to downward adjustments to our margin estimates due to lower global sales forecast for HMG and rising commodity prices. Additionally, given recent macroeconomic uncertainties, we are removing a 10% valuation premium.

Last year, Mando’s chassis and self-driving businesses were separated, and Mando Mobility Solutions (MMS), which was Mando’s Advanced Driver Assistance Systems (ADAS) division, merged with HL Klemove in December. Strengthened by the restructuring of the activity, the company’s medium/long-term growth prospects should be underlined.

We forecast 2022 sales of 6,830.3 billion W (+11.1% YoY) and OPs of 300 billion W (+29.5% YoY; OPM of 4.4%). Although chip supply issues and other supply-side uncertainties are expected to persist in the near term, we view Mando’s medium/long-term business prospects as strong as customer/product diversification progresses smoothly.

1Q22 preview: To benefit from the solid growth of electric vehicle players in China and North America

We estimate 1Q22 sales at 1,557 billion W (+3.7% YoY) and OP at 62.3 billion W (-13.3% YoY; OPM of 4.0%), sales and POs exceeding consensus.

Despite lower global HMG sales, we expect Mando to post higher than expected earnings as sales are expected to exceed previous estimates, driven by: 1) the recovery of the Chinese market; and 2) strong growth at Mando’s main North American customer. Earnings improvement is likely in the process of recovering market demand, as: 1) Mando’s Chinese business has successfully diversified its customer base; and 2) HMG, which continues to struggle in China, only makes 14% of its sales in the country.

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