Ssangyong Motor has rarely set investors' pulses racing. But some analysts and fund managers feel that South Korea's smallest auto maker by sales is coming up, thanks to a focus on China, new models and a restructuring spurred by the company's Chinese parent.
Ssangyong Motor posted net losses of 103.4 billion won ($112 million) in 2005 and 196 billion won in 2006. Its lineup, dominated by gas-guzzling sport utility vehicles, didn't appeal to energy-conscious consumers, while operational inefficiencies drained cash and turned off investors.
However, after SAIC Motor bought 51% of Ssangyong in 2005, it launched a cost-cutting program and improved the manufacturing system -- changes that are now bearing fruit. The Korean maker posted a net profit of 16.7 billion won for the nine months ended Sept 30. and expects a full-year profit.
Shares of Ssangyong have gained just 7.8% so far this year, lagging the 33% rise in Korea's benchmark Kospi index. But seven analysts surveyed by Dow Jones Newswires have an average six-month target price of 8,300 won on the stock, implying a 46% upside from Monday's close of 5,670 won.
"Ssangyong has fallen enough this year that it has now secured much room to rise on the burgeoning recreational vehicle market in China," says Kee Ho-sam, a fund manager at Daehan Investment Trust Management.
The surveyed analysts, on average, put Ssangyong's price-earnings ratio for 2008 at nine. That's higher than their average of eight for all Korean car makers, but lower than Thomson One Analytics' estimate of 11.47 for the global sector.
South Korea's car industry, which heavily depends on exports, is in recovery mode at home. It had a strong 2002, when 1.64 million vehicles were sold in Korea, but then widespread individual defaults on debt cut demand for years. The industry's fortunes have been improving since 2006, and analysts expect demand in emerging economies like China, India and Russia to bolster demand at least through the first half of next year.
In the first 11 months of 2007, Korean car makers sold 4.76 million vehicles, or 9.4% more than a year earlier. Of the total, 1.09 million were bought at home. Ssangyong sold 124,691 vehicles, 16% more than in the same period of 2006. For the full year, Hannuri Securities expects Ssangyong's vehicle sales to rise 12%, while Woori Investment & Securities thinks those of Hyundai Motor will increase only 2%.
Analysts warn that U.S. sales for Korean makers might be hurt by the dollar's weakness against the won while domestic sales will likely be dampened by competitive foreign imports and high oil prices.
Zhang Haitao, the top executive of Ssangyong, says about 70% of its exports are to Europe "but it is not immune" to problems rooted in the weak dollar as it gets dollar payments in Eastern Europe and China.
It is China that is pivotal to Ssangyong's growth hopes. SAIC Motor, China's leading car maker by sales volume, has joint ventures with General Motors and Volkswagen, and has announced one with Ssangyong, which has a focus on SUVs the Chinese company lacks.
Hannuri says that a project expected to get Chinese government approval next year involves bringing into China at least 14,000 "complete knockdown" kits, or CKDs, for assembly of Ssangyong's Kyron model. Customs duties levied on CKDs in China are 11%, compared with 25% on assembled vehicles.
The joint business should help Ssangyong sales in China "skyrocket in coming years," says Hannuri analyst Sunny Sohn. The two companies also plan to develop five platforms, five engines and about 20 models by 2011, with SAIC bearing the cost, about 20 billion yuan.
About 200,000 SUVs are sold a year in China, the world's second-biggest car market. While the number of vehicles sold in China rose 27% from January through September from a year earlier, the SUV market jumped 47%.
Meantime, in a bid to boost sales back home, Ssangyong will launch the W200 large luxury car in the second quarter of 2008. Mr. Zhang says Ssangyong is aiming to sell at least 1,500 W200s a month. Ssangyong also plans to produce a sub-midsize sedan, a midsize sedan, a small SUV and a premium SUV by 2011. It currently has only one sedan, the large premium Chairman.
Ssangyong hopes it can overtake GM Daewoo as Korea's third-largest car maker, behind Hyundai and Kia Motors, by 2011. Hanwha Securities sees Ssangyong's financial performance improving; it forecasts net profit of 29.8 billion won this year and 129 billion won in 2008.
Some analysts remain cautious, expressing fears over the domestic market, which they say is already mature, and high oil prices. "It is like a zero-sum game where domestic car makers must compete for the same paltry pie in this almost saturated market," says Park Seh-ick, a fund manager at Hanwha Investment Trust Management.
In such an environment, Ssangyong may become increasingly dependent on growing in China. In the tough Chinese market, Ssanyong "will make further inroads into the potential market through business ties with SAIC Motor," says Kwak Tai-ho, a fund manager at Kyobo Investment Trust Management.
