AUTOMOBILES
Investment Strategy for 1H: Still an Attractive Investment
􀂄 Sector Outlook for 1H: Focus More on Leading Stocks
We are now more optimistic of domestic automakers’ overseas business for 2008. Initially,
we had conservatively forecasted that domestic automakers would be sluggish in overseas
markets in 1H08 but pick up in 2H08, since US domestic consumption was anticipated to
stagnate in 1H and recover in 2H. However, the automakers are showing greater-thananticipated
overseas performance in 1H. While Korean automakers are showing weakerthan-
anticipated performance in the US, performance in the domestic market and emerging
markets has been far greater than we anticipated. In China, Korean automakers, including
Hyundai Motor, are delivering notable earnings growth. Overall, the strong performance in
these markets is offsetting the weak performance in the US market.
􀂄 The Won Turned Weak after Three Years of Appreciation, Acting as a Catalyst for
Earnings Momentum in 1H
The won turned weak. Considering intensifying global inflation, supply and demand in
domestic F/X market and government policies, the won is likely to remain weak for the time
being. Current F/X rates should further boost earnings momentum, which is being generated
from strong sales in emerging markets and robust exports to Europe. The F/X rates are
projected to add W460bn to HMC’s operating profit (including increases in costs).
􀂄 Earnings Should Remain Strong in 1H and Turn Weak in 2H; Top-Tier Companies Are
to Significantly Improve Earnings in 2008: Our Top Pick for 1H Is HMC
In 2008, top-tier automakers are forecast to deliver notable earnings growth. The 2008 EPS
of Hyundai Motor Company (005380) is projected to increase 47% YoY. Earnings momentum
is anticipated to be concentrated in 1H, and uncertainties are to grow in 2H. Considering its
valuation merits, we are Overweight on the automobile sector. We recommend HMC and
Hyundai Mobis as our top picks for 1H08. Investors should also watch for a turnaround by
Kia Motors (00270).

I. INVESTMENT SUMMARY
We are now more optimistic of domestic automakers’ overseas business for 2008. Initially, we
conservatively forecasted domestic automakers would be sluggish in overseas markets in
1H08 but pick up in 2H08, since US domestic consumption was anticipated to stagnate in 1H
and recover in 2H. However, we now anticipate that their overseas performance will remain
strong until the end of 1H.
While Korean automakers are showing weaker-than-anticipated performance in the US,
performance in the domestic market and emerging markets has been much greater than we
anticipated. In China, Korean automakers, including Hyundai Motor, are delivering notable
earnings growth amid a rapid increase in demand. Overall, the earnings of top-tier
automakers are forecast to remain strong throughout 1H, especially in these key markets.
The value of the won against major currencies, including the US dollar and euro, has been
rapidly declining since the beginning of this year, boosting the earnings of automakers like
HMC that have a great focus on exports. Earnings momentum should remain solid, as the won
is likely to remain weak YoY, given global inflation pressure and tight supply and demand.
Meanwhile, strong prices of raw materials such as steel, non-ferrous metal, and
petrochemicals should push up costs beginning 2H. However, annual earnings growth from
the strong won is projected to be sufficient to offset the cost increase.
Considering the upward revisions of our forecasts for W/US$ rates by 2.2% and for W/EUR
rates by 4.3% and considering earnings erosion from rising costs amid strong raw material
prices, we revised up 2008F operating profit and EPS for HMC by 4.2% and 2.1%, respectively.
Top-tier Korean automakers seem extremely undervalued in Korea, despite their strong
earnings growth. Though HMC’s 2008F operating profit and EPS are projected to grow by 38%
and 47%, respectively, the company’s P/E is 12% lower than the market average. We believe
the valuations of automobile stocks are attractive, since automakers, along with IT companies,
are anticipated to deliver significant earnings growth in 2008 and since they are major
beneficiaries of favorable F/X rates.
Valuation discounts for global peers, especially for top-tier global players Toyota and Honda,
are increasing out of concern about potential earnings erosion from the rising yen and high
dependence on the US market.
However, top-tier Korean companies like HMC are forecast to deliver visible earnings growth,
fueled by favorable F/X rates, less focus on the US, and strong sales in other markets. As such,
Korean automakers are likely to have differentiated performance in valuation and share
performance.
In 2Q, strong raw material prices will likely translate into an increase in costs. However, for
the full year, earnings at top-tier companies are anticipated to rebound in the strong auto
market, and supply and demand are anticipated to improve toward year-end on the back of
economic recovery in the US and restructuring of the automobile industry. Considering the
earnings growth of top-tier companies during the strong auto market in 1H, we believe now is
the time to aggressively buy automobile stocks, rather than sell them.
We recommend HMC as our top pick for 1H and maintain Buy on HMC and Hyundai Mobis.
Hyundai Motor is expected to maintain earnings momentum until 2H, considering: 1) the
launch of new models in the domestic market, 2) strong sales in emerging markets and robust
exports, 3) margin improvement from rising F/X rates, and 4) a rise in overseas capacity
utilization rate.

Content
I. Investment Summary......................................................................................3
II. Valuation, Share Price Trend, and Outlook .....................................................5
1. While Global Automakers Are Given a Valuation Discount, HMC Is Expected to Show
Differentiated Share Performance................................................................................5
2. Earnings Momentum to Boost Relative Valuation to the Domestic Manufacturing Sector
..................................................................................................................................8
III. Market Outlook for 2008 and Business Parameters .......................................9
1. Domestic Market.....................................................................................................9
2. United States.........................................................................................................12
3. China/India/Europe ..............................................................................................15
4. Other Emerging Markets .......................................................................................17
5. F/X Rates (Welcome Guest) vs. Raw Material Prices (Unwelcome Guest) .................18
IV. Investment Strategy and Top Picks .............................................................21
V. Earnings Preview for Three Companies under Hyundai Motor Group ............23
1. Hyundai Motor Company (HMC) ............................................................................23
2. Kia Motors ............................................................................................................24
3. Hyundai Mobis ......................................................................................................25
Hyundai Motor (005380) .................................................................................26
Kia Motors (000270) .......................................................................................29
Hyundai Mobis (012330) .................................................................................33