Hyundai Motor Share Class: Time to Short Common & Long Pref

Consumer Discretionary / Industrials

Henry Kwon

Equity Bottom-Up

Hyundai Motor's new B-platform crossover Venue was unveiled at the NY Auto Show this week and listening to the presentation made by Mr. SangYup Lee, Executive VP of Design at Hyundai Motor, gave us a few impressions about the company in the post-MK Chung era.  Here are some of our impressions:<ul>
<li>Executive Vice Chairman ES Chung earned the respect of professional managers at Hyundai with his design-centered turnaround of Kia Motors more than a decade ago, and a design-centered strategic attempt at a turnaround is evident.</li>
<li>ES Chung has developed a reputation internally for staffing key positions with talent without regard for national origin and irrespective of whether that talent comes from other Korean chaebol groups or other global companies.  This has been a clear shift in group culture since his landmark hiring of Peter Schreyer while at Kia in 2006.</li>
<li>The Venue is a B platform crossover which is intended to replace the outgoing Accent, the venerable old B-segment sedan that had spearheaded Hyundai's global branding thrust but which will finally be discontinued.  While a bit late to the party, Hyundai's increasing number of SUV/Crossovers in its product portfolio should aid its market share recovery especially in its B/C platform segments which has always been the brand's traditional area of strength.</li>
<li>Mr. Lee explained at the US unveiling of the new Sonata that the company is moving away from its prior focus on a "family look" favored during the Schreyer era.  While the "family look" has worked in establishing strong brand identity for premium European brands, Asian brands' experiment with family looks have been less successful in our view.  The new Sonata felt like it was designed with the North American market in mind and the US friendly aesthetics more likely has a lot to do with Mr. Lee's background in having designed the Chevy Camaro (remember Bumblebee from the Transformers movies?).  We felt that this is a step in the right direction.</li>
</ul>These strategic signals, while very important, are very rarely covered by sell side research since they signal what is to come 2-3 years down the line, not 2 quarters from now.  The Venue, given its 4Q19 target launch date, will be a 2020 equity story.  While we do not like to interject with our personal opinions on whether these products will sell at least the audience response at the NYIAS was positive and this is a good sign given New Yorkers do not engage in false applauses out of a sense of courtesy.The last 5 years which could also be termed the "lost 5 years" represents one product cycle (the inevitable response from analysts with TMT backgrounds and sales desks at banks is "but handsets get replaced every 12 months" but that is the way the car industry works).  We believe smart money should begin to watch what the current transition taking place at Hyundai signals about the next product cycle.The Hyundai Venue<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/085/302/original/Screen%20Shot%202019-04-18%20at%203.10.43%20PM.png?1555614674" class="editor-image img-responsive" data-smartkarma-image-id="85302"></figure><div class="content-caption">Source: Taken with Author's iPhone at the NYIAS 2019</div>

Hyundai Motor's new B-platform crossover Venue was unveiled at the NY Auto Show this week and listening to the presentation made by Mr. SangYup Lee, Executive VP of Design at Hyundai Motor, gave us a few impressions about the company in the post-MK Chung era.  Here are some of our impressions:
Executive Vice Chairman ES Chung earned the respect of professional managers at Hyundai with his design-centered turnaround of Kia Motors more than a decade ago, and a design-centered strategic attempt at a turnaround is evident.
ES Chung has developed a reputation internally for staffing key positions with talent without regard for national origin and irrespective of whether that talent comes from other Korean chaebol groups or other global companies.  This has been a clear shift in group culture since his landmark hiring of Peter Schreyer while at Kia in 2006.
The Venue is a B platform crossover which is intended to replace the outgoing Accent, the venerable old B-segment sedan that had spearheaded Hyundai's global branding thrust but which will finally be discontinued.  While a bit late to the party, Hyundai's increasing number of SUV/Crossovers in its product portfolio should aid its market share recovery especially in its B/C platform segments which has always been the brand's traditional area of strength.
Mr. Lee explained at the US unveiling of the new Sonata that the company is moving away from its prior focus on a "family look" favored during the Schreyer era.  While the "family look" has worked in establishing strong brand identity for premium European brands, Asian brands' experiment with family looks have been less successful in our view.  The new Sonata felt like it was designed with the North American market in mind and the US friendly aesthetics more likely has a lot to do with Mr. Lee's background in having designed the Chevy Camaro (remember Bumblebee from the Transformers movies?).  We felt that this is a step in the right direction.
These strategic signals, while very important, are very rarely covered by sell side research since they signal what is to come 2-3 years down the line, not 2 quarters from now.  The Venue, given its 4Q19 target launch date, will be a 2020 equity story.  While we do not like to interject with our personal opinions on whether these products will sell at least the audience response at the NYIAS was positive and this is a good sign given New Yorkers do not engage in false applauses out of a sense of courtesy.The last 5 years which could also be termed the "lost 5 years" represents one product cycle (the inevitable response from analysts with TMT backgrounds and sales desks at banks is "but handsets get replaced every 12 months" but that is the way the car industry works).  We believe smart money should begin to watch what the current transition taking place at Hyundai signals about the next product cycle.The Hyundai VenueSource: Taken with Author's iPhone at the NYIAS 2019

Hyundai Motor (005380.KS): A Few Thoughts on the Venue Unveiling at the NY International Auto Show