Kia (KIMTF, Financial), the Korean auto manufacturer, has made inroads into the U.S. market and the stock is very reasonably priced. The company has a market cap of 17 trillion Korean won ($15.4 billion). It takes 1,104 Koren won to buy one dollar. Kia's stock hasn't done anything in four years. In 2012, it was over 80,000 won. Now, it trades at 42,150 won.
Kia sold 2,215,256 cars in 2015, 2,707,120 cars in 2014 and 2,746,430 cars in 2013. Over that time frame, it made 49.5 billion won, 47 billion won and 46.6 billion won. Net profit was 2.6 billion won, 3 billion won and 3.8 billion won. You can see the drop from 2013.
Of Kia's cars, 56.5% are manufactured in Korea, 20.2% China, 12.1% U.S. and 11.1% Slovakia. Kia is made in Slovakia. I wonder if they chose the country because the last three letters are kia? Sales-wise, 21.1% are purchased in the U.S., 13.2% Europe, 21.1% China, 18.1% Korea and 26.1% in the rest of the world. As often is the case, the U.S. is a disproportiante percentage of sales.
The balance sheet appears strong, 9.3 billion won in cash and 3.3 billion won in accounts receivables. This is to 7.7 billion won in accounts payables, 2 billion won in loans and 4.1 billion won in debt. For the first half of 2016, sales were up to 27 billion won from 23.6 billion won in the same time in 2015. Free cash flow for the first six months was 2.2 billion won.
In an article this weekend from Barron's Asian Rountable, Ronald Chan of Chartwell Capital mentioned that his firm own shares. He noted that the stock pays a 2.5% dividend yield and trades at a price to earnings ratio of 6.4. On top of that, the price to book is 0.7. I'd call Kia a value stock, no doubt. Chan thinks the stock has 30% to 40% in upside.
Asian markets fell in early September when seismologist detected a 5.3 "earthquake" in North Korea. The earthquake was a nuclear test. The Kospi, the Korean market, fell 1.3%. It's always good to know a few good stocks in a country when there is a short-term opportunity. The won has strengthened this year and now takes 100 less to buy the dollar.
The Wall Street Journal reported that September retail sales for autos dropped slightly this September from 2016. It was a slight drop of 0.3%.
Looking at Kia's offerings, most of their cars seem to be about 20% less than comparable Japanese makes. The Optima retails for $21,990. This would be comparable to a Camry or Accord. I see an Optima Hybrid that goes for $36,000. A Cadenza retails for about $34,000. This is comparable to a Toyota Avalon. The Soul sells for $15,800. Have you seen the commercials for Soul? One has these hamsters driving around. It's one of my favorites. The Sportage is a neat little sport utility. It retails for $25,000. I'd say it's on par with a Rav-4 from Toyota.
So how is the global auto market going to continue to do? Since the financial crash of 2008/2009, things have really picked up. Is this going to continue or is their going to be a correction of some sorts? Even if there is, Kia's stock seems to have priced this in.
Kia is an interesting company. It's made headway into the U.S. Of course, its success is based upon a strong global economy. Having said that, the stock is pretty cheap. The dividend is decent and valuations are quite reasonable.
Disclosure: We do not own shares.
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