Hyundai Motors Co: Offering A 72% Margin Of Safety

Jun 11, 2015

The Japanese auto manufacturer Hyundari Motors (HYMTF, Financial)Â is one of the few auto manufacturers selling at a discount to fair value. The company has been facing some headwinds as of late, however, these headwinds haven't affected the company's underlining business economics. With the company underperforming, its competitors has resulted in the firm being dropped from the 500 largest companies list. The company has been squeezed by slowing sales and plans on cutting its domestic operating cost. Since the beginning of 2015 the company's stock is down 20% and sales have fallen 6% in May.

Hyundai auto sales compared to its competitors

Â	SALES			YTD SALES			% MARKET SHARE
Â	May 2015	May 2014	% Chg	2015	2014	% Chg	May 2015	May 2014	YTD 2015	YTD 2014
General Motors Corp.	293,097	284,694	3.0	1,246,192	1,188,407	4.9	17.9	17.7	17.7	17.6
Total Cars	98,787	113,186	-12.7	406,585	478,725	-15.1	6.0	7.0	5.8	7.1
Domestic Car	98,663	112,945	-12.6	405,941	477,427	-15.0	6.0	7.0	5.8	7.1
Import Car	124	241	-48.5	644	1,298	-50.4	...	...	...	...
Total Light Trucks	194,310	171,508	13.3	839,607	709,682	18.3	11.9	10.7	11.9	10.5
Domestic Truck	194,310	171,508	13.3	839,607	709,682	18.3	11.9	10.7	11.9	10.5
Import Truck	...	...	...	...	...	...	...	...	...	...
Ford Motor Company	250,086	253,346	-1.3	1,063,638	1,043,961	1.9	15.3	15.7	15.1	15.5
Total Cars	89,755	88,926	0.9	351,512	356,776	-1.5	5.5	5.5	5.0	5.3
Domestic Car	89,755	88,926	0.9	351,512	356,776	-1.5	5.5	5.5	5.0	5.3
Import Car	...	...	...	...	...	...	...	...	...	...
Total Light Trucks	160,331	164,420	-2.5	712,126	687,185	3.6	9.8	10.2	10.1	10.2
Domestic Truck	160,331	164,420	-2.5	712,126	687,185	3.6	9.8	10.2	10.1	10.2
Import Truck	...	...	...	...	...	...	...	...	...	...
Chrysler	198,320	189,650	4.6	878,152	828,543	6.0	12.1	11.8	12.5	12.3
Total Cars	48,100	36,580	31.5	225,523	189,687	18.9	2.9	2.3	3.2	2.8
Domestic Car	48,100	36,580	31.5	225,523	189,687	18.9	2.9	2.3	3.2	2.8
Import Car	...	...	...	...	...	...	...	...	...	...
Total Light Trucks	150,220	153,070	-1.9	652,629	638,856	2.2	9.2	9.5	9.3	9.5
Domestic Truck	145,804	153,070	-4.7	643,056	638,856	0.7	8.9	9.5	9.1	9.5
Import Truck	4,416	...	...	9,573	...	...	0.3	...	0.1	...
Toyota Motor Sales USA Inc.	242,579	243,236	-0.3	1,021,528	963,893	6.0	14.8	15.1	14.5	14.3
Total Cars	128,037	143,244	-10.6	535,722	539,509	-0.7	7.8	8.9	7.6	8.0
Domestic Car	86,069	93,488	-7.9	361,487	351,578	2.8	5.3	5.8	5.1	5.2
Import Car	41,968	49,756	-15.7	174,235	187,931	-7.3	2.6	3.1	2.5	2.8
Total Light Trucks	114,542	99,992	14.6	485,806	424,384	14.5	7.0	6.2	6.9	6.3
Domestic Truck	88,759	77,707	14.2	379,658	338,076	12.3	5.4	4.8	5.4	5.0
Import Truck	25,783	22,285	15.7	106,148	86,308	23.0	1.6	1.4	1.5	1.3
American Honda Motor Co Inc.	154,593	152,603	1.3	618,604	610,413	1.3	9.5	9.5	8.8	9.1
Total Cars	79,850	84,467	-5.5	316,935	331,623	-4.4	4.9	5.3	4.5	4.9
Domestic Car	79,217	78,793	0.5	313,772	303,033	3.5	4.8	4.9	4.5	4.5
Import Car	633	5,674	-88.8	3,163	28,590	-88.9	...	0.4	...	0.4
Total Light Trucks	74,743	68,136	9.7	301,669	278,790	8.2	4.6	4.2	4.3	4.1
Domestic Truck	74,743	68,136	9.7	301,669	278,790	8.2	4.6	4.2	4.3	4.1
Import Truck	...	...	...	...	...	...	...	...	...	...
Nissan North America Inc.	134,779	135,934	-0.8	612,255	594,834	2.9	8.2	8.4	8.7	8.8
Total Cars	77,338	86,835	-10.9	352,702	371,121	-5.0	4.7	5.4	5.0	5.5
Domestic Car	68,049	75,601	-10.0	306,289	313,782	-2.4	4.2	4.7	4.3	4.7
Import Car	9,289	11,234	-17.3	46,413	57,339	-19.1	0.6	0.7	0.7	0.9
Total Light Trucks	57,441	49,099	17.0	259,553	223,713	16.0	3.5	3.1	3.7	3.3
Domestic Truck	56,811	44,863	26.6	256,019	202,563	26.4	3.5	2.8	3.6	3.0
Import Truck	630	4,236	-85.1	3,534	21,150	-83.3	...	0.3	0.1	0.3
Hyundai Motor America	63,610	70,907	-10.3	303,648	297,027	2.2	3.9	4.4	4.3	4.4
Total Cars	51,897	55,787	-7.0	240,328	233,391	3.0	3.2	3.5	3.4	3.5
Total Light Trucks	11,713	15,120	-22.5	63,320	63,636	-0.5	0.7	0.9	0.9	0.9
Mazda Motor of America Inc.	29,606	29,731	-0.4	131,773	130,222	1.2	1.8	1.8	1.9	1.9
Total Cars	16,356	17,967	-9.0	75,075	73,554	2.1	1.0	1.1	1.1	1.1
Domestic Car	...	...	...	...	...	...	...	...	...	...
Import Car	16,356	17,967	-9.0	75,075	73,554	2.1	1.0	1.1	1.1	1.1
Total Light Trucks	13,250	11,764	12.6	56,698	56,668	0.1	0.8	0.7	0.8	0.8
Domestic Truck	...	...	...	...	1	-100.0	...	...	...	...
Import Truck	13,250	11,764	12.6	56,698	56,667	0.1	0.8	0.7	0.8	0.8
Mitsubishi Motors N A, Inc.	9,575	7,269	31.7	41,581	33,651	23.6	0.6	0.5	0.6	0.5
Total Cars	4,850	3,157	53.6	21,248	14,709	44.5	0.3	0.2	0.3	0.2
Domestic Car	...	...	...	...	122	-100.0	...	...	...	...
Import Car	4,850	3,157	53.6	21,248	14,587	45.7	0.3	0.2	0.3	0.2
Total Light Trucks	4,725	4,112	14.9	20,333	18,942	7.3	0.3	0.3	0.3	0.3
Domestic Truck	...	...	...	...	...	...	...	...	...	...
Import Truck	4,725	4,112	14.9	20,333	18,942	7.3	0.3	0.3	0.3	0.3
Kia Motors America Inc.	62,433	60,087	3.9	256,815	246,769	4.1	3.8	3.7	3.6	3.7
Total Cars	43,093	44,791	-3.8	173,782	185,410	-6.3	2.6	2.8	2.5	2.7
Total Light Trucks	19,340	15,296	26.4	83,033	61,359	35.3	1.2	1.0	1.2	0.9
Subaru of America Inc.	49,561	44,170	12.2	228,083	196,641	16.0	3.0	2.7	3.2	2.9
Total Cars	26,528	24,162	9.8	126,420	106,683	18.5	1.6	1.5	1.8	1.6
Domestic Car	17,384	14,694	18.3	85,052	65,953	29.0	1.1	0.9	1.2	1.0
Import Car	9,144	9,468	-3.4	41,368	40,730	1.6	0.6	0.6	0.6	0.6
Total Light Trucks	23,033	20,008	15.1	101,663	89,958	13.0	1.4	1.2	1.4	1.3
Domestic Truck	...	84	-100.0	...	544	-100.0	...	...	...	...
Import Truck	23,033	19,924	15.6	101,663	89,414	13.7	1.4	1.2	1.4	1.3
Mercedes-Benz	32,350	28,881	12.0	148,014	134,401	10.1	2.0	1.8	2.1	2.0
Total Cars	18,023	16,426	9.7	83,781	80,989	3.4	1.1	1.0	1.2	1.2
Total Light Trucks	14,327	12,455	15.0	64,233	53,412	20.3	0.9	0.8	0.9	0.8
Domestic Truck	6,314	6,410	-1.5	30,275	28,052	7.9	0.4	0.4	0.4	0.4
Import Truck	8,013	6,045	32.6	33,958	25,360	33.9	0.5	0.4	0.5	0.4
Volvo	5,023	5,014	0.2	23,381	23,347	0.1	0.3	0.3	0.3	0.3
Total Cars	1,895	2,569	-26.2	9,861	12,726	-22.5	0.1	0.2	0.1	0.2
Total Light Trucks	3,128	2,445	27.9	13,520	10,621	27.3	0.2	0.2	0.2	0.2
Volkswagen of America Inc.	34,758	32,163	8.1	144,006	150,317	-4.2	2.1	2.0	2.0	2.2
Total Cars	30,979	28,889	7.2	130,184	135,744	-4.1	1.9	1.8	1.8	2.0
Domestic Car	18,614	16,644	11.8	76,541	77,774	-1.6	1.1	1.0	1.1	1.2
Import Car	12,365	12,245	1.0	53,643	57,970	-7.5	0.8	0.8	0.8	0.9
Total Light Trucks	3,779	3,274	15.4	13,822	14,573	-5.2	0.2	0.2	0.2	0.2
Audi of America Inc.	18,428	16,601	11.0	75,353	67,482	11.7	1.1	1.0	1.1	1.0
Total Cars	11,197	11,310	-1.0	45,682	44,573	2.5	0.7	0.7	0.6	0.7
Total Light Trucks	7,231	5,291	36.7	29,671	22,909	29.5	0.4	0.3	0.4	0.3
BMW of North America Inc.	31,003	29,602	4.7	136,447	127,181	7.3	1.9	1.8	1.9	1.9
Total Cars	20,551	18,076	13.7	93,769	76,988	21.8	1.3	1.1	1.3	1.1
Domestic Car	...	...	...	...	...	...	...	...	...	...
Import Car	20,551	18,076	13.7	93,769	76,988	21.8	1.3	1.1	1.3	1.1
Total Light Trucks	10,452	11,526	-9.3	42,678	50,193	-15.0	0.6	0.7	0.6	0.7
Domestic Truck	9,312	10,365	-10.2	37,891	39,934	-5.1	0.6	0.6	0.5	0.6
Import Truck	1,140	1,161	-1.8	4,787	10,259	-53.3	0.1	0.1	0.1	0.2
Porsche Cars NA Inc.	4,268	4,609	-7.4	20,915	18,817	11.1	0.3	0.3	0.3	0.3
Total Cars	1,830	2,052	-10.8	9,041	10,141	-10.8	0.1	0.1	0.1	0.2
Total Light Trucks	2,438	2,557	-4.7	11,874	8,676	36.9	0.1	0.2	0.2	0.1
Jaguar *	1,204	1,304	-7.7	6,619	7,054	-6.2	0.1	0.1	0.1	0.1
Land Rover **	5,382	4,536	18.7	27,669	22,148	24.9	0.3	0.3	0.4	0.3
Alfa Romeo *	40	...	...	295	...	...	...	...	...	...
Fiat *	3,867	4,771	-18.9	18,661	20,494	-8.9	0.2	0.3	0.3	0.3
Mini *	5,833	5,729	1.8	24,086	18,776	28.3	0.4	0.4	0.3	0.3
Smart *	837	689	21.5	2,850	3,974	-28.3	0.1	...	...	0.1
Ferrari *	209	189	10.6	900	903	-0.3	...	...	...	...
Tesla *	1,900	1,500	26.7	6,950	7,600	-8.6	0.1	0.1	0.1	0.1
Maserati *	1,341	1,144	17.2	4,330	4,475	-3.2	0.1	0.1	0.1	0.1
Bentley *	244	233	4.7	1,026	1,092	-6.0	...	...	...	...
Lamborghini *	92	39	135.9	462	205	125.4	...	...	...	...
Rolls Royce *	72	62	16.1	352	321	9.7	...	...	...	...
Maybach *	...	...	...	...	...	...	...	...	...	...
Total Car	764,697	794,084	-3.7	3,264,673	3,307,243	-1.3	46.8	49.4	46.3	49.0
Domestic Car	238,542	240,192	-0.7	990,570	1,032,788	-4.1	14.6	14.9	14.1	15.3
Import Car	526,155	553,892	-5.0	2,274,103	2,274,455	...	32.2	34.4	32.3	33.7
Total Truck	870,393	814,609	6.8	3,779,912	3,435,705	10.0	53.2	50.6	53.7	51.0
Domestic Truck	504,861	488,998	3.2	2,204,362	2,035,723	8.3	30.9	30.4	31.3	30.2
Import Truck	365,532	325,611	12.3	1,575,550	1,399,982	12.5	22.4	20.2	22.4	20.8
TOTAL LIGHT VEHICLE SALES	1,635,090	1,608,693	1.6	7,044,585	6,742,948	4.5	100.0	100.0	100.0	100.0
Selling Days	26	27	...	127	128	...	...	...	...	...

Source: Wall Street Jounal

Currently Hyundai has a market share as of May 2015, of 3.9% and for fiscal year 2014 had a 4.4% market share. For May 2015, the company sold 63,000 cars vs. 70,000 in May 2014 a decline of at least 10%. The company's Hyundai Elantra is one of the top 20 selling cars as of May 2015.

Finanicals

For the first quarter of 2015, the company's operating profits fell by 16% and net profits fell 2.2% as well. The sales were down as well and net profits came in at around $1.8 billion. This is the fifth consecutive quarter in the roll were the company's net profits fell. Hyundai has been struggling to compete with Japanese rival Toyota Motors (TM, Financial). The company's problems are being driven by the strengthing of the won against the yen which makes the company's cars more expensive in export markets. During the first quarter the won reached a seven-year high vs the yen.

Valuation

Symbol:	HYMTF	Â	Â	Â	Â
P/E:	4.10	Â	Â	Â	Â
P/S:	0.25	Â	Â	Â	Â
P/B:	0.60	Â	Â	Â	Â
Price:	$46.13	Â	Â	Â	Â
Fair Value:	$163.63	Â	Â	Â	Â
Margin Of Safety:	72%	Â	Â

The company is selling at historical lows and offering investor a 70% margin of safety based on discount cash flow valuation. Hyundai sells for 4x earning, 7x EV/EBIT, and 0.6x book value. The company has a earnings yield of 13% and a forward rate of return of 18%. When doing discount cash flow I used a 15%, 17%, and 20% discount rates to create a value range for the company. These discount rates produce margins of safety of 80%, 77%, and 72% respectively.

Discount cash flow valuation:

At 15% the company has a present value of $226 with a margin of safety of 80%.
At 17% the company has a present value of $197 with a margin of safety of 77%.
At 20% the company has a present value of $163 with a margin of safety of 72%.

Hyundai is clearly undervalued offering potential investors a large margin of safety thanks to Mr. Market.

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