- Imminent stock price rebound

We maintain BUY with a 12-month price target of W170,000 based on a 12-month-forward PER of 16x, the historical high. We believe the recent stock price correction which started from the news of a recall on Feb 24 offers a good bargain-hunting chance for a couple reasons. 1) The negative impact from the YF Sonata recall is negligible considering its minimal size (47,300 units vs. Toyota’s 10.73mn) with no connection to accidents or injuries and a quick reaction from the company. 2) As the YF Sonata will begin full-scale sales in March with two TV adverts during the Super Bowl and Academy Awards focused on the new Sonata, and Toyota’s crisis deepening, the rising trend of Hyundai Motor’s (Hyundai) US market share should soon resume.

- Deepening Toyota woes

Hyundai’s February US market share remained at 4.4% but Toyota continued to fall to 12.8% from 15.9% a year earlier and 14.1% in January. Toyota’s US sales fell 15.8% YoY in January and 8.7% YoY in February. The slowed sales decline is due mainly to a low base of comparison with February 2009 and its increased incentives (USD1,474 in Jan a USD1,614 in Feb). Meanwhile, according to the Automotive News on Mar 5, the number of unintended-acceleration complaints from Toyota owners whose vehicles have been recalled and repaired ballooned to 60, which is reigniting US consumer doubts over Toyota’s safety. In this regard, the US House of Representatives wants Toyota to provide proof of its testing claims at the next hearing scheduled on Mar 11.

- A rash of good news for Hyundai

In February, Hyundai’s YF Sonata earned the Insurance Institute for Highway Safety’s Top Safety Pick Award (see our news comment dated Feb 19 ? YF Sonata US sales should motor to record high) along with Kia Motors’ (Kia) Soul. In addition, the YF Sonata’s three-year-after residual value rose to 52.8%, according to the Automotive Lease Guide, which is higher than the Toyota Camry’s 49.5%, Nissan Altima’s 51.1%, Ford Fusion’s 44.4% and segment average of 46.9%. The YF Sonata’s value soared 11%p from the NF Sonata’s 41.8%. Meanwhile, the Elantra was named Top Pick in the small sedan segment in Consumer Reports’ April 2010 Annual Auto Issue for a third straight year and Hyundai’s overall ranking rose to fourth from ninth in 2009.