Hyundai Motor Company - PowerPoint PPT Presentation

About This Presentation
Title:

Hyundai Motor Company

Description:

In 2003, Hyundai has an investment of $250 million in China in conjunction with ... Hyundai projects and plans production to be 200,000 units per year by 2005 ... – PowerPoint PPT presentation

Number of Views:5454
Avg rating:3.0/5.0
Slides: 41
Provided by: STE5
Category:
Tags: company | hyundai | motor

less

Transcript and Presenter's Notes

Title: Hyundai Motor Company


1
Hyundai Motor Company Beijing Automotive Joint
Venture
  • April 30th, 2003
  • Topics in Emerging Markets
  • Richard Lee
  • Kevin Park
  • Michael Cheng

2
Agenda.
  • Case Study Introduction
  • Hyundai Motor Company
  • South Korea Overview
  • Impact of the Asian Financial Crisis
  • China Overview
  • Chinese Automotive Industry
  • Hyundai Financial Analysis
  • Case Solution

3
Case Introduction.
  • In 2003, Hyundai has an investment of 250
    million in China in conjunction with Beijing
    Automotive to produce 100,000 units per year
  • Hyundai projects and plans production to be
    200,000 units per year by 2005
  • Investment Decision Does Hyundai invest the
    necessary 1.1 billion in year 2005 to increase
    production that will yield 500,000 units per year
    by 2010?
  • A great test run and indicator of Hyundais
    potential as it plans to become a global
    automotive player

4
Agenda.
  • Case Study Introduction
  • Hyundai Motor Company
  • South Korea Overview
  • Impact of the Asian Financial Crisis
  • China Overview
  • Chinese Automotive Industry
  • Hyundai Financial Analysis
  • Case Solution

5
Hyundai History Development
  • Established in 1967, Hyundai is presently South
    Koreas 1 carmaker, manufacturing dozens of
    models of cars, vans, and minivans
  • Throughout the past two decades, Hyundai
    introduced various models Pony, Excel, Scoupe,
    Sonata, and Accent.
  • In 1990, Hyundai introduced its own engine
    design, the Alpha. Two years later, it
    introduced its second-generation engine, the
    Beta.
  • Acquired a 51 stake in Kia Motors in 1998
  • In 2001, Hyundai sold a 9 stake to
    DaimlerChrysler to strengthen its global market
    position and to boost sales abroad

6
Hyundai Current Market Share
7
Agenda.
  • Case Study Introduction
  • Hyundai Motor Company
  • South Korea Overview
  • Impact of the Asian Financial Crisis
  • China Overview
  • Chinese Automotive Industry
  • Hyundai Financial Analysis
  • Case Solution

8
South Korea Economic Study
  • South Korea went from having a GDP as low as
    Algerias in 1961 to becoming the worlds 11th
    largest economy
  • Started to export goods like steel, automobiles,
    and ships.
  • South Korea came a long way from the days when it
    siphoned its scarce capital into strategic
    industries
  • Politicians and bureaucrats became the
    instruments for large businesses, large wage
    increases and foolish business decisions
    diminished competitiveness, and banks were
    ordered by the government to prop up large firms
  • These things were all for not when the Asian
    Financial Crisis hit South Korea.

9
South Korea Economic Study
  • The Korean Won fell by 54 to 1962 Won/
  • The KOSPI fell by more than 65 in 1997-1998
  • Several major companies went bankrupt
  • GDP shrank by 5.8 during this crisis time

10
South Korea Political Climate
  • In 1997, Kim Dae-Jung was elected as President
  • Kim won a Nobel Peace Prize for his commitment to
    Democracy and his reconciliation efforts with the
    North
  • Historical, first meeting between the North and
    the South to discuss joint unification in 2000
  • South Koreas foreign policy calls for the
    peaceful resolve of their situation with
    Communist North and any action necessary to
    maintain its own state of democracy
  • Political tension continues to brew within the
    Korean peninsula to this day

11
Agenda.
  • Case Study Introduction.
  • Hyundai Motor Company
  • South Korea Overview
  • Impact of the Asian Financial Crisis
  • China Overview
  • Chinese Automotive Industry
  • Hyundai Financial Analysis
  • Case Solution

12
Asian Financial Crisis Pre-crisis
  • South Koreas postwar economy was envy of other
    developing countries. System of
  • High savings
  • Close cooperation between government and business
  • Export oriented
  • GNP rose from US200 (1960) to US11,500 (1996)

13
Asian Financial Crisis Crisis
  • Fostered corruption and speculation
  • Business bankruptcies and employment insecurity
  • Sharp rise in interest rates
  • Dramatic fluctuations of exchange rate
  • Collapse of stock price
  • Exodus of foreign currency
  • Major economic crisis and subsequent labor unrest
    in 1997
  • General strike called
  • Biggest-ever IMF bailout, 57 billion rescue
    package

14
Asian Financial Crisis Recovery
  • Strong recovery in 1999-2000, negatively affected
    by global economic slowdown, recover in 2002
  • Fuelled by domestic demand
  • Increased government spending
  • Reasons for recovery
  • Break the hold of chaebols over financial sector
  • Economy opened up to short and long-term capital
    from abroad
  • Companies comply with international accounting
    standards
  • Foreigners account for 40 percent of stock market
    transactions

15
(No Transcript)
16
Agenda.
  • Case Study Introduction.
  • Hyundai Motor Company
  • South Korea Overview
  • Impact of the Asian Financial Crisis
  • China Overview
  • Chinese Automotive Industry
  • Hyundai Financial Analysis
  • Case Solution

17
China Macro Overview
  • Chinas doors opened to the world in 1978
  • Experienced over 20 years unprecedented economic
    growth
  • Convert from command economy to market economy
  • Role of State Owned Enterprises (SOEs)
  • Challenge of dismantling

18
China and the WTO
  • After 15 years of attempts, China joined the
    World Trade Organization on September 15, 2001
  • Over next 5 years, China will remove barriers to
    entry
  • Improve external economic relations
  • Bring in increased competition
  • Increase speed of economic reform

19
Economic Performance
  • Large increases in per capita income
  • Rise in non-state sector activity
  • Growth in exports and domestic demand

20
Foreign Direct Investment
  • During 2002, China was the worlds leading
    recipient of FDI
  • China has reduced its import tariff on
    automobiles and auto parts

21
Agenda.
  • Case Study Introduction.
  • Hyundai Motor Company
  • South Korea Overview
  • Impact of the Asian Financial Crisis
  • China Overview
  • Chinese Automotive Industry
  • Hyundai Financial Analysis
  • Case Solution

22
Chinas Automobile Industry
  • State of undergrowth
  • Due to past regulation of Chinese government
  • Currently about 25 factories
  • Manufacturers cannot meet quotas
  • Steady development and progress over last couple
    years
  • Yearly increase of 6.63 from 1995

23
(No Transcript)
24
Automotive Industry Outlook
  • Very promising future
  • Opening up of Chinese Market
  • Implementation of mass production techniques
  • Increase in manufacturing technology

25
Agenda.
  • Case Study Introduction.
  • Hyundai Motor Company
  • South Korea Overview
  • Impact of the Asian Financial Crisis
  • China Overview
  • Chinese Automotive Industry
  • Hyundai Financial Analysis
  • Case Solution

26
Hyundai Financial Analysis.
  • After the financial crisis
  • Sales of 20 billion worldwide
  • Hyundai has invested 6.25 billion in global
    expansion
  • From 300 D/E to 50 D/E
  • Doubled financial ratios across the board
  • Assets, Revenue, Units Sold, Return on Sales
  • Currently trades around 24,000 KRW (4/9/03)

27
Cost of Capital Inputs.
  • Goldman Sachs Integrated Model
  • Model Inputs
  • Risk Premium
  • Instead of using the US risk premium of 4.89
    which represents the geometric mean of the
    historical returns from 1961, we decided to use a
    risk premium of 9.44. Our reasoning for this
    change primarily deals with our assumption that
    the previous risk premium wouldnt be an accurate
    representation of returns in this particular
    model. The latter risk premiums are those
    returns only from 1991, a reasonable change being
    that we were valuing an emerging market company.

28
Cost of Capital Inputs.
  • Sovereign Yield Spread
  • To calculate this spread, which is crucial in
    this model, we subtracted the 10 year US bond
    rate of 3.87 from the 10 year Korean bond rate
    of 8.80.
  • Although we could only find a 3 year Korean bond
    rate, we prorated this rate over 10 years.
  • Appropriate Discount Rate
  • 13.71

29
Equity Valuation.
30
Equity Valuation Summary.
  • Conclusion on Hyundai Motor Company
  • Using the Gordian Growth stable growth DCF model
    for equity valuation, we found the value of the
    company as 6.7 trillion won.
  • Hyundai, having 219 million shares outstanding,
    translates into a target price of 30,605.44 won.
  • Currently, Hyundai Motor Corp (Ticker 05380.KS),
    last traded at 25,000 won on March 28, 2003.
  • Recommendation BUY
  • Hyundai is an undervalued company that has great
    global potential..

31
Agenda.
  • Case Study Introduction.
  • Hyundai Motor Company
  • South Korea Overview
  • Impact of the Asian Financial Crisis
  • China Overview
  • Chinese Automotive Industry
  • Hyundai Financial Analysis
  • Case Solution

32
Case Study Summary.
  • Hyundai agreed to pay 250 million in a joint
    venture with Beijing Automotive.
  • Starting at 100,000 units in 2003, plans to
    expand to 200,000 units by 2005.
  • If the production is a success, Hyundai will
    invest 1.1 billion to increase productivity to
    500,000 by 2010.
  • Is the investment in Chinas emerging market a
    good move by Hyundai?

33
Project Summary Inputs.
  • Cash Flows Assumptions
  • Invoice prices of the Sonata Elantra are global
    prices
  • After finding this revenue stream, we calculated
    the cost of each car by using Hyundais historic
    profit margin per car of 20.
  • 50 of revenue would go to Beijing Automotive

34
Project Summary Inputs.
  • Cost of Capital
  • In our previous valuation of Hyundai, we
    calculated the relative cost of capital for all
    Hyundais future projects of 13.71.
  • Appropriate discount rate since Hyundai will
    finance the project with firm assets like equity
    and cash.

35
Project Summary Inputs.
  • Production
  • Starting at 100,000 units, production will
    increase by 50,000 till 2005 ultimately producing
    200,000 units
  • From 2005 to 2010, production will increase
    60,000 units per year

36
Hyundai-Beijing MotorProject Valuation.
37
Project Summary.
  • After doing a DCF valuation of the
    Hyundai-Beijing Motor project, we get a positive
    NPV of 152,633,450 for the 8 year project.
  • Although this valuation may not be entirely
    accurate because factors like inflation,
    political, social and economic risk are not
    wholly accounted for, we believe that it is a
    reasonable and rational valuation and will offer
    a reference point for the project.

38
Project Outlook
  • In order to be successful
  • Must form synergies on all levels with China and
    Beijing Automotive
  • Hyundai must use their experience in investing in
    4 other plants in China
  • Take advantage of the first mover opportunity in
    Chinas deregulated auto market

39
Relevance
  • Great opportunity for Hyundais business
    development
  • Tremendous global growth potential
  • Bottom line There is lots of money to be
    discovered and made in the emerging markets of
    Korea and China!!!

40
Thank You.Questions?
Write a Comment
User Comments (0)
About PowerShow.com