* Windfall profit from Toyota’s crisis

Korean automakers rev up in 2010

The year 2010 started with healthy sales (511,132 units, +67.7% YoY), led by better-than-expected domestic sales and historically high overseas plant sales. We attribute this astonishing rise to the continuing new model effects, the start of output at Kia Motors’ (Kia) US plant and the record-breaking rally in China sales. Considering the expiry of tax breaks to replace old vehicles at the end of 2009, the January domestic sales number (119,448 units) comes as a nice surprise. Furthermore, Kia’s China sales posted a monthly record high for the third consecutive month and Hyundai Motor’s (Hyundai) renewed its previous historical high China sales figure recorded in September 2009. We believe Korean automakers’ stock prices will continue to rise on the back of strong sales and the windfall positive effects from Toyota’s recall debacle.

Recovery of US market share to continue

10.56mn Toyota vehicles have been recalled worldwide since the fall of 2009. Amid the recent spate of bad news for Toyota, Hyundai and Kia have just kicked off sales of two new volume vehicles (redesigned Tucson and Sorento) in the US. We believe Hyundai and Kia will benefit the most from Toyota’s crisis, which is deepening due to problems with the Prius. In particular, we believe Hyundai will be a main beneficiary as the sale of the YF Sonata is scheduled to begin in February. In this regard, we forecast Hyundai and Kia’s 2010 US sales will grow to 579K and 375K units, up 33% and 25% from 2009, respectively. Assuming US demand at 11.5mn (+10.3% YoY) for 2010F, Hyundai and Kia’s US market share should rise to 5% and 3.3%, respectively, in 2010F, from 4.2% and 2.9% in 2009.