South Korea Auto Parts and Robots: Risk-reward ratio improves after deep stock price correction, upgrades to Hyundai Mobis and HL Mando (J.P. Morgan)
J.P.
J.P. Morgan upgraded Hyundai Mobis (N to positive rating, OW) and HL Mando (cautious rating to Neutral, UW to N). The main logic is that their stock prices have retreated 36% and 37% respectively from their peaks, and the risk-reward ratio has become attractive. The current stock price has basically reflected the conservative valuation of its core auto parts business, while the robotic actuator business has become a valuable incremental option. The SOTP valuation shows that Hyundai Mobis' core business is worth 44 trillion won, plus the robot equity value of 6 trillion won and the business valuation of 13 trillion won, which is enough to support the current market value. Mando's core franchise value of 2.3 trillion won also provided support for the stock price. One-sentence conclusion: Korean auto parts stocks are oversold due to the market's pessimistic expectations for traditional businesses. Current valuations already imply extremely low growth expectations, while the potential robotics business provides free call options with risk/reward considerations and potential upside scenarios. Pros/Cons: Positives: Hyundai Mobis (rated to positive rating), HL Mando (rated to Neutral). Tip: This rating upgrade is mainly based on valuation restoration after the pessimistic expectations are cleared, rather than a strong improvement in fundamentals. Catalysts from the robotics business are a source of additional share price elasticity that has yet to be priced in. Catalyst: 2Q26 performance: Pay attention to the actual profitability after hedging against commodity cost headwinds and exchange rate tailwinds. Robot business progress: Hyundai Mobis and HL Mando’s robot actuator/driver products have received customer designation or mass production. China's market recovery: China's auto market sales have resumed, boosting South Korea's parts exports.