Hanon Systems acquisition talks offset overvaluation concern: analyst

By Son Ji-hyoung
  • Published : Jun 24, 2021 - 16:02
  • Updated : Jun 25, 2021 - 11:01

A logo of Hanon Systems
South Korean auto parts maker Hanon Systems’ overvaluation concern due to foreign clients‘ delay in production is being offset by acquisition talks, analysts said Thursday.

This comes as a major shareholder of Hanon Systems, private equity firm Hahn & Co., is considering selling a controlling stake in the thermal management automotive supplier. Hahn & Co. has named Morgan Stanley and Evercore as the deal manager, six years after it took over control of the company with Hankook Tire & Technology.

Hanon Systems’ major client Ford decided to halt production due to a semiconductor shortage during the second quarter. Coupled with a slower-than-expected dollar recovery and the lasting pandemic impact on India, the delay in production has highlighted concerns that Hanon Systems stocks are currently priced higher on the market than its intrinsic value. 

Park Jun-ho, an analyst at Hanwha Investment & Securities, revised down Hanon System‘s second-quarter earnings prospect Thursday. His estimate on Hanon Systems’ 2021 operating profit was lowered by 1.7 percent to 517 billion won ($456 million).

Despite such pressure, the controlling stock sale procedure underway is making the case for the current valuation of Hanon Systems, Park added.

“The crystalizing talks for controlling stake sale supports the current stock price,” Park wrote in a note Thursday.

“A buyer‘s proposed acquisition price, new financial investors’ strategy to increase the company‘s value and new strategic investors’ possible synergy effect with Hanon Systems will be variables for (Hanon Systems) stock price movement.”

Hahn & Co. holds a 50.5 percent stake in Hanon System, while the second-largest shareholder Hankook Tire & Technology owns 19.49 percent voting rights of the company trading on the Korea Exchange.

The two companies teamed up to buy the controlling stake from US auto parts supplier Visteon in 2015, for 3.9 trillion won in total, for a share price of 52,000 won.

The same amount of shares‘ market price has gone up to as high as 6.3 trillion won Thursday. Market eyes are on how much of an acquisition premium will be represented in the forthcoming deal.

Having gone through a 5-to-1 stock split in 2016 and having acquired fluid pressure and controls business of Magna International in 2019 for 1.4 trillion won, Hanon Systems was trading at 16,850 won apiece in Thursday closing.

A bidding process was initiated this week to sell the combined 70 percent of ownership of Hahn & Co. and Hankook Tire. Auto supplier Mahle and private equity firms Carlyle Group and Bain Capital have reportedly joined the nonbinding bids to buy the stake. Another auto supplier rival Valeo had reportedly denied having made an offer to buy the company.

Hahn & Co. said in a disclosure Wednesday that nothing has been determined regarding the stake sale or other strategic decisions.

Other notable shareholders of Hanon Systems include the National Pension Service, according to filings.