Asia Essentials

Event

Mando reported better-than-expected 4Q16 earnings today after marketclose. Mando is the first company to beat our and market expectations in theKorean auto sector for 4Q16.

Impact

Strong 4Q16 earnings. Mando reported revenue of Won1,703bn, +19.0%YoY and 25.5% QoQ, and OP of Won110bn (OPM of 6.4%), beating our andmarket expectations by a large margin of 26%. Its revenue growth wasespecially impressive with double-digit growth in all major geographicalmarkets, Korea, China, and the US. Mando delivered strong growth fromHMC and Kia, a stark contrast to Hyundai Mobis (Hyundai Mobis – Ouch!,26 January 2017), thanks to 1) its larger share within high-ASP models likeGrandeur and Genesis G80/G90, and SUV, 2) ADAS revenue, and 3) India.

Moreover, the company benefited from strong sales of Geely, its secondlargest client in China.

We forecast revenue of Won6.2tr, +6.3% YoY, in 2017… Managementprovided conservative guidance of 2.4% YoY growth in revenue for 2017.

Slow revenue growth is only due to 1) high base from 2016 on higher-thanexpectedrevenue growth in 2016, 2) FX assumption of Won1,100 per US$,and 3) divestment of Mando Advanced Materials (Won56bn p.a.). We forecastits revenue to outgrow management’s guidance on ADAS revenue pick-upand Won depreciation (Won1,148 per US$ assumed).

…more importantly, OPM should expand 60bps to 5.8% (vs.

management’s guidance of 5.4%). We are positive on Mando’s marginexpansion from product mix improvement (electronic parts and ADAS).

Furthermore, regulations on autonomous emergency brakes (AEB) shoulddrive structural ASP expansion in Mando, along with electronic power steering(EPS) adoption in China and India.