Hyundai Motor Company-Beijing Automotive Joint Venture Case Study

Topics in Emerging Markets Pro ! Mei Apri" #$ %&&'

Mic(ae" C(eng- mpc238@stern.nyu.edu )ic(ard *ee- rl392@stern.nyu.edu +evin Park- kgp203@stern.nyu.edu

Ta,"e o ContentsE.ecutive Summary: Case Study: Introduction: Case ackground: ! Hyundai Motor Corp Background / History: " Sout( +orean Macro Study: #conomic ackground: $ %ocial Climate: 9 &olitical Condition: 10 C(ina Macro Study: '(er(ie): 12 C*ina and t*e +,': 13 +orean 0oreign 1irect 2nvestments in C(ina: 14 Current C(inese Automotive 2ndustry: 1! C(ina3s Automotive 2ndustry 4ut"ook: 1" Asian 0inancia" Crisis: %ummary: 1$ -eco(ery: 18 2 4 3

Hyundai Motor Corp 0inancia" Ana"ysis: Introduction: 20 .etailed /inancial 0nalysis: 21 #1uity 2aluation: 24 Conclusion: 24 Case So"ution: &ro3ect 2aluation: 2! Input .escriptions: 2! Conclusion: 2$ E.(i,its: 4yundai 5otor Corp /inancial %tatements 29 Bi,"iograp(y: 32

E.ecutive SummaryIn t*is case study6 )e )ill e7amine t*e pro8a8ility o9 success o9 4yundai:s ne) 3oint (enture )it* ei3ing 0utomoti(e in C*ina. 'n /e8ruary !6 20026 4yundai announced a !0-!0 (enture to set up a production 9acility in C*ina. ,*e 3oint (enture plant to 8e set up in ei3ing )ill initially produce 1006000 units o9 %onatas and #lantras6 t*en gradually increase to 2006000 units 8y 200! and )ill cost an estimated ;2!0 million. I9 t*e (enture is a success )it*in t*ese years6 t*en 4yundai )ill in(est an additional ;1.1 8illion to increase production to !006000 8y 2010:s year-end. 3

4yundai6 esta8lis*ed in 19"$6 *as come along )ay 9rom its *um8le 8eginnings. -iding t*e )a(e o9 %out* <orea:s economic gro)t* in t*e past t*ree decades6 4yundai *as 8ecome a glo8al player in t*e automoti(e industry. In 2! years6 4yundai gre) 9rom producing a 9e) *undred cars per year6 to e7porting cumulati(e s*ipments o9 o(er !.! million units. 0s suc*6 it is imperati(e t*at 4yundai stri(es to continue to e7pand and di(ersi9y in ot*er countries6 namely6 emerging markets. 0ttri8uting to t*is gro)t* are 3oint (entures )it* ot*er automoti(e manu9acturers. +e 8elie(e t*at t*ere is tremendous opportunity to 8e reali=ed in t*ese strengt*ening 0sian economies> C*ina is one o9 t*e leaders in recei(ing 9oreign direct in(estments in t*e )orld6 and t*is is a strong testament to its economic potential in t*e near 9uture. ,*is case )ill introduce students to t)o o9 t*e strongest emerging markets and )ill e7plore t*e automoti(e relations*ip 8et)een <orea and C*ina. 'ur *ope is t*at students )ill recogni=e t*is potential and take ad(antage o9 it as t*ey em8ark on t*eir pro9essional careers.

Hyundai Motor Corp Case StudyBui"ding a Car Manu acturing P"ant in Beijing
2ntroduction,o)ards t*e end o9 a mont*ly 8oard meeting6 -ic*ard ?ee6 C#' o9 4yundai 5otor Co.6 leaned o(er t*e ta8le to)ards *is C/'6 @uan +oo &ark6 and asked6 A.o you t*ink )e s*ould in(est t*e pro3ected ;1.1 8illion in 200! in our ne)ly-constructed manu9acturing plant in C*ina to 8oost production to our desired !006000 units per year 8y 2010BC

5r. &ark con9idently replied6 A?et me get a team toget*er and run t*e num8ers6 and I )ill *a(e my recommendation on your ta8le in no time at all.C A'k6 get to )ork on t*at6 and *a(e a report 9or t*e oard t*e ne7t time )e meet.C A@ot it6 sirDC 5r. &ark t*oug*t a8out *is task 9or a moment6 and 8e9ore starting6 *e re1uired e7tra kno)ledge and e7pertise a8out C*ina and its automoti(e industry. 5r. &ark immediately proceeded to call *is good colleague6 5ic*ael C*eng6 )*o )orked 9or 5ckinsey E Co. in C*ina. 5r. C*eng *ad a (ast kno)ledge o9 t*e automoti(e industry in C*ina. 4e pre(iously )orked as a car salesman in C*ina 9or se(eral years and )as (ery 9amiliar )it* t*e country:s imports and e7ports o9 automo8iles. e9ore (aluating

t*e pro3ect6 5r. &ark 9elt like *e still needed someone to paint a 8etter picture o9 C*ina:s demograp*y as )ell as its political and economic status. ,*ere9ore6 *e called upon *is good 9riend6 5r. F.&. 5ei6 )*o )orks 9or t*e go(ernment o9 C*ina. 5r. F.&. 5ei )as also (ery 9amiliar )it* 9oreign direct in(estment processes t*roug* a large num8er o9 pro3ects dealing )it* glo8al companies. 5r. &ark 9le) all o9 *is 8uddies in 9rom C*ina6 and t*e group got started on 8uilding a recommendation 9or t*e oard o9 4yundai 5otor Company. 5r. &ark 9elt con9ident and e7cited as *e em8arked on *is recommendation 9or t*e manu9acturing plant in C*ina. ut 8e9ore t*ey crunc*ed any num8ers6 t*e group *ad a couple o9 ma3or

1uestions t*ey *ad to consider: 4o) s*ould t*is pro3ect 8e 9inancedB +*at is an appropriate cost o9 capital 9or t*e pro3ectB 4o) )ill re(enues 8e pro3ected 9rom year to yearB

,*e t*ree colleagues stared at eac* ot*er 9or a moment6 scratc*ed t*eir *eads6 and strapped on t*eir t*inking caps.... Case BackgroundIn recent years6 t*e 0sian 9inancial markets *a(e su99ered tremendously6 to say t*e least. 'nly recently *a(e t*e 0sian markets impro(ed. '9 t*e countries in t*e 0sian 9inancial crisis6 %out* <orea *as 8een one o9 t*e countries t*at sur(i(ed t*e cras* and is no) t*ri(ing. %candals6 corruption6 and 8ad accounting are in t*e process o9 8eing addressed6 and t*e traditional AFae8ulsC are slo)ly disappearing and 8eing replaced )it* more structured management. <orean 8usinesses *a(e e7perienced and sur(i(ed t*e )orst part o9 t*e 0sian market crisis and t*e 9uture o9 t*ose companies *as muc* potential in 8ecoming glo8al players in all industries. C*ina6 t*e most populous country in t*e )orld6 *as 3ust opened its doors to t*e )orld o9 automoti(e trade. 0nalysts *a(e commented t*at 9or C*inese automakers to sur(i(e6 t*ey must partner up or paris*. 4yundai6 *a(ing already set up 9our ot*er production plants in C*ina6 *as 8een success9ul. 4o)e(er6 )it* a (olatile glo8al market and c*anging trends6 )ill 4yundai 8e a8le to make t*eir 8iggest in(estment pro3ect pay o99B

Hyundai Motor Corp! History and Background

4yundai 5otor Corp )as esta8lis*ed in 19"$ and is %out* <orea:s G1 carmaker. 4yundai product line includes roug*ly a do=en models o9 cars and mini(ans6 trucks6 8uses6 and ot*er commercial (e*icles. In 19986 it ac1uired a !1H stake in <ia 5otors6 resulting in its position as t*e leading carmaker in <orea. 4yundaiIs main e7ports

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include t*e 0ccent and %onata models6 )*ile its <orean domestic models include t*e 0to= su8-compact. 4yundai *opes to esta8lis* a strong )orld)ide manu9acturing presence. .aimlerC*rysler *as purc*ased a 9H stake in 4yundai as part o9 a plan to 8oost .aimlerC*ryslerIs 0sian market presence. ,*e t)o companies plan to 9orm a 3oint (enture to de(elop small cars 9or t*e glo8al market. It initially 8egan manu9acturing cars and lig*t trucks t*roug* a 3oint (enture )it* /ord. 4o)e(er6 8y t*e early 19$0s 4yundai )as ready to 8uild cars under its o)n name 8y de8uting its su8compact &ony in 19$4. ,*e &ony )as a great success domestically and soon propelled 4yundai to t*e top spot among <oreaIs carmakers. .uring t*e mid-19$0s6 t*e company 8egan e7porting t*e &ony to #l %al(ador and @uatemala. %e(eral years later6 4yundai started to mass produce and anticipated penetrating strategies into markets around t*e )orld including Canada. 4yundai t*en introduced t*e 4yundai #7cel in 198!. ,*at (ery year t*e company esta8lis*ed a su8sidiary in t*e Jnited %tates6 t*e 4yundai 5otor 0merica. 4yundai e7ported #7cels to t*e J% and sales soared t*e ne7t year. uilding on t*is success6 it

8uilt a 9actory in Kue8ec6 Canada. ,*e company introduced its 9irst sports car6 t*e %coupe6 in 1990. ,*e 9ollo)ing year it de(eloped t*e 9irst 4yundai-designed engine6 called t*e 0lp*a. ,)o years later 4yundai un(eiled its second-generation proprietary engine6 t*e eta. y 1998 4yundai )as 8eginning to 9eel t*e pinc* o9 t*e 0sian economic crisis as domestic demand dropped drastically. 4o)e(er6 t*e decrease in <orean demand )as

largely o99set 8y e7ports. 4yundai not only esta8lis*ed a 3oint (enture )it* .aimlerC*rysler 8ut )ent on to esta8lis* a colla8oration )it* 5itsu8is*i 5otors to 9urt*er de(elop small cars 9or t*e glo8al market. It is also important to note t*at 4yundai ac1uired <ia 5otors in 19986 t*ere8y increasing t*eir market s*are in %out* <orea. Hyundai3s Market S(are in Sout( +orea-

Sout( +orean Macro Study

Economic Background,*e %out*:s success )as 1uite un9oreseen. ,*e country )*ere &ark C*ung 4ee sei=ed po)er in 19"1 *ad a @.& per *ead e1ual to 0lgeria:s. Its t*ird-largest e7port )as )igs. ,*e a(erage li9e e7pectancy o9 its people )as !!. ut t*ose people )ere )elleducated6 t*ey )orked *ard and t*ey sa(ed )*at t*ey could. ,*e go(ernment did its 8est to promote de(elopment6 supporting 9irms t*at succeeded in 9oreign markets. ,*irty-si7 years later %out* <orea )as t*e )orld:s 11t*-largest economy6 )it* an income per *ead on a par )it* &ortugal6 and *ad 8ecome a mem8er o9 t*e '#C.. 0(erage li9e e7pectancy *ad 3umped to $1. ,*e country *ad also 8ecome *ome to t*e sort o9 industries t*at a strong military go(ernment )ould )ant plenty o96 suc* as giant steel 9irms6 car makers and s*ip8uilders.

ut t*is miracle came at a price. 'utside t*e regime:s c*armed circle6 no entrepreneur could t*ri(e. &etty-minded o99icials 8anned suc* Ae7tra(agancesC as neon lig*ts Luntil t*e 19$0sM6 red cars Luntil t*e mid-1980sM and *olidays a8road Luntil 198$M. %uccessi(e go(ernments used t*e supposed t*reat o9 su8(ersion 8y t*e Nort* to 3usti9y oppression6 purges6 incarceration6 rigged elections6 propaganda and a *ars* nationalsecurity la). %out* <orea:s great ac*ie(ement in t*e past decade *as 8een to 8egin to s*ed t*is legacy6 peace9ully. ,*e country:s current president6 <im .ae Fung6 is a 9ormer dissident )*o )as almost assassinated on t*e orders o9 one general6 and sentenced to deat* on trumped-up c*arges on t*e orders o9 anot*er. In 199$ *e )as elected )it*out a murmur 9rom t*e armed 9orces. 0nd t*e economy *as come a long )ay since t*e days )*en t*e planning commission sip*oned scarce capital into strategic industries under t*e country:s 9i(e-year plan. Oet in t*e past 9e) years %out* <orea:s continued s*ortcomings *a(e also 8een plain 9or all to see. &oliticians and 8ureaucrats 8ecame t*e instruments o9 8ig 8usiness. .uring t*e 1990s6 large )age rises and 9ool*ardy di(ersi9ication diminis*ed <orean companies: competiti(eness. ,*e go(ernment6 desperate to a(oid 9ailures6 instructed 8anks to prop up large 9irms. ut t*is did not )ork 9or long: t*e 0sian crisis knocked t*e country side)ays. /rom peak to troug*6 t*e )on 9ell 8y !4H to 169"2 to t*e dollar6 t*e stock market plunged 8y "!H 8et)een Fune 199$ and Fune 19986 and some o9 t*e country:s 8est-kno)n companies )ent 8ankrupt. ?ast year @.& s*rank 8y !.8H. Fust )*en t*e %out* <oreans t*oug*t t*ey *ad made it6 t*eir economic miracle seemed to 8e e(aporating.

,o its credit6 t*e country *as ackno)ledged its 9aults )it* remarka8le candor. It *as not tried to 8lame 9oreigners 9or its trou8les6 nor *as it *id 8e*ind tari99 8arriers or currency controls. Instead6 it *as pledged to a8andon t*e economic system t*at took it 9rom po(erty to prosperity in a generation. Socia" C"imate,o 9ully understand t*e %out* <orean social climate6 one must recogni=e t*e tremendous *ig*s and t*e dread9ul lo)s <orea *as 9aced in t*eir economy6 tec*nology6 9inancial markets6 glo8al relations6 and t*eir domestic politics. '(er t*e past decade6 seemingly6 %out* <orea *as e7perienced )*at most countries *a(e 9aced in t*eir )*ole *istory. eginning in t*e early 1990:s6 %out* <orea e7perienced an in9lu7 o9

tec*nological ad(ancements6 increased political certainty6 and a gro)ing economy. +it* t*e introductions o9 t*ese ne) aspects o9 <orean li9e6 t*e accumulation o9 )ealt* seemed to increase as )ell. 0lt*oug* slo) at 9irst6 t*e continuous glo8al in(estments 8egan to gro) and soon <orea )as considered one o9 t*e /our .ragons6 nicknamed 9or *a(ing suc* a gro)ing economy and *a(ing muc* potential in terms o9 glo8al in(estment opportunities. It )as during t*is 8oom t*at <orea:s @.& e7ploded. -elati(e to some ot*er 0sian countries6 #ast and %out*6 <orea )as t*ri(ing o99 o9 a 8ooming automoti(e and electronics markets. %oon t*e @.& )as se(en times t*at o9 India6 and nearly t*irteen times t*at o9 its communist neig*8ors in t*e Nort*. <orea:s @.& gre) so muc*6 in 9act6 t*at t*eir @.& ri(aled t*at o9 some #uropean Jnion Countries. ,*ese )ere t*e times t*at <orea and its people )ere t*ri(ing. %ocially6 people )ere spending more on lu7ury goods and companies )orld)ide opened 8usinesses and in(ested *ea(ily in one o9 t*e

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/our .ragons. 0ll o9 t*e gro)t*6 )ealt*6 and in(estments6 *o)e(er6 ultimately came to a cras*ing end during t*e 0sian /inancial Crisis. 0s mentioned a8o(e6 in 199$-19986 <orea6 along )it* almost all o9 t*e ot*er de(eloping 0sian countries e7perienced t*e )orst o9 9inancial times. ,*e gro)t* t*ese countries *a(e 9aced in t*e past 3ust could not continue. Countries no) *esitated on in(esting in 0sian countries6 8eing t*at t*ese countries potentially *a(e tremendous risk in(ol(ed )it* it. 5ore important to t*e people6 *o)e(er6 )ealt*6 3o8s6 and pride )ere lost. ?ooking 8ack on t*e crisis6 no) t*at t*e )orst is o(er6 %out* <orea *as re8ounded pretty nicely. In 20016 t*e %out* <orean economy *as outper9ormed t*e ma3ority o9 t*e ot*er 0sian Countries and *as continued to s*o) muc* impro(ement 9rom 3ust t*ree years prior. Po"itica" Condition o Sout( +orea%out* <orea is a repu8lic )*ere t*e president6 ser(ing a term o9 ! years6 and t*e legislature6 consisting o9 2$3 mem8ers6 s*are po)er. ,*e country *as nine pro(inces and si7 separate cities: %eoul6 &usan6 Inc*on6 ,aegu6 <)ang3u6 and ,ae3on. ,*ere are se(eral political parties t*at include t*e 5illennium .emocratic &arty L5.&M6 t*e @rand National &arty L@N&M6 t*e Jnited ?i8eral .emocrats LJ?.M6 and t*e .emocratic &eopleIs &arty. In 199$6 <im .ae-3ung o9 t*e National Congress 9or Ne) &olitics LNCN&M )on t*e presidential election6 de9eating ?ee 4oi-C*ang and -*ee In-Fe. 'n *is inauguration in /e8ruary 19986 <im stated an engagement policy to)ard t*e Nort* 8ased on t*e separation o9 economic and political issues 8ut still )anted to take a 9irm stance on security. ,*is approac* *as 8een maintained despite strong criticism 9rom t*e opposing

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@N& and sometimes 9rom t*e Nort*6 including attempted in9iltrations into t*e %out*. In 20006 <im )as a)arded t*e No8el &eace &ri=e 9or *is commitment to democracy and *is e99orts to)ard reconciliation )it* t*e Nort*. &resident <imIs relations )it* t*e opposition *a(e o9ten 8een contentious and *eated. ,*e @N& remains t*e largest-single party in t*e National 0ssem8ly. 4o)e(er6 in Fanuary 20016 &resident <imIs party6 renamed t*e 5illennium .emocratic &arty L5.&M6 reentered into a coalition )it* t*e Jnited ?i8eral .emocrats LJ?.M led 8y 9ormer &rime 5inister <im Fong-&il. +it* t*e ne) coalition and an agreement 9rom t*e .emocratic &eopleIs &arty6 &resident <im esta8lis*ed a ma3ority po)er in t*e 0ssem8ly in /e8ruary 2001. /rom Fune 13 to 1!6 20006 t*e leaders o9 t*e t)o <oreas *eld a *istoric meeting in &yongyang and signed a 3oint declaration )*ic* promised continued dialogue6 t*e reunion o9 separated 9amily mem8ers6 cultural e7c*anges6 and t*e pursuit o9 reuni9ication. /ollo)ing t*e meeting6 contacts 8et)een t*e -epu8lic o9 <orea and t*e .emocratic -epu8lic o9 %out* <orea increased and t*e de9ense ministers 9rom eac* country met 9or t*e 9irst time on C*e3u Island in %out* <orea on %eptem8er 2!. In 0ugust and No(em8er 2000 and in /e8ruary 20016 t*e t)o <oreas sent delegations o9 100 mem8ers o9 separated 9amilies to eac* ot*erIs capitals 9or reunion meetings. +*ile %out* <oreans take pride in its democratic state6 it is t*eir *opes t*at t*eir Nort*ern counterparts can en3oy t*e same ci(il rig*ts6 economic 9reedom6 and li9estyle t*at t*ey possess> t*eir 9oreign policy includes t*e peace9ul resol(e o9 t*eir situation )it* Communist Nort* and any action necessary to maintain its o)n state o9 democracy.

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-ecently6 *o)e(er6 t*eir nort*ern neig*8or *as *elped 9uel a glo8al concern o9 )ar. 0rmed )it* nuclear )eapons and lead 8y an argua8ly cra=y leader6 Nort* <orea *as commanded attention on t*e glo8al plat9orm. &eace treaties6 9oreign inter(entions6 and t*reats o9 )ar *a(e all 8ut decreased Nort* <orea:s stance on communist t*reat.

C(ina Macro Study

4vervie5C*inaIs doors )ere opened to t*e )orld in 19$8 8y .eng Piaoping6 and since6 C*ina *as e7perienced o(er 20 years o9 unprecedented economic gro)t*6 )it* its economy gro)ing 9aster t*an any ot*er in *istory. C*ina *as *ad great success in con(erting 9rom a command economy to a market economy6 mo(ing 9rom a rural to an ur8an society6 and maintaining political sta8ility. 4o)e(er6 C*ina *as e(en greater c*allenges a*ead. 5o(ement o9 )orkers 9rom ine99icient state-o)ned enterprises LQ%'#sQM into t*e pri(ate sector 8roug*t a8out corruption6 regional income ine1uality6 )eak 9inancial institutions6 industrial o(er-capacity6 price de9lation and unemployment. .uring C*inaIs economic de(elopment6 %'#s *ad played a key role6 pro(iding employment6 directing in(estment to strategic industries and pro(iding (arious social ser(ices. ecause o9 t*e 8road role and importance t*e %'#s played in C*inese society6 dismantling t*em is a ma3or c*allenge. ecause o9 t*is *istory6 t*e transition to a market

economy largely depends on t*e corresponding introduction o9 ne) pri(ate sector 3o8s and t*e pace at )*ic* %'#s can 8e restructured and t*eir e7cess )orkers released. -apid economic gro)t* is essential in C*ina:s restructuring. 5aintaining t*e %'#s )eig*s do)n ot*er sectors o9 t*e economy6 8ut s*utting t*em do)n precipitously could create a political insta8ility.

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C(ina and t(e 6or"d Trade 4rgani7ation09ter 1! years o9 attempts to secure mem8ers*ip6 C*ina 3oined t*e +orld ,rade 'rgani=ation LQ+,'QM on %ept. 1!6 20016 and accessed into t*e +,' in .ecem8er 2001. #ntering t*e +,' )ill greatly 8ene9it C*ina in many )ays. It )ill increase t*e speed o9 economic re9orm6 impro(e e7ternal economic relations and 8ring in increased competition. '(er t*e ne7t 9i(e years6 C*ina )ill slas* tari99 and non-tari99 8arriers6 as )ell as open up sectors o9 t*e economy t*at *a(e long 8een 8locked o99 to 9oreigners. Economic Per ormanceC*inaIs market-oriented re9orms *a(e *ad large success in economic trans9ormation6 *elping *undreds o9 millions o9 people out o9 po(erty. ,*ere *as 8een large progress and increases in per capita incomes6 a su8stantial rise in non-state sector acti(ity6 gro)ing integration into t*e glo8al economy and an e99ecti(e start to resolution o9 9inancial sector re9orm. #conomic gro)t* gained momentum during 2000. %trong 9iscal spending and pri(ate consumption dro(e domestic demand. #7port gro)t* accelerated to 28 percent as t*e glo8al I, 8oom entered its 9inal year. ,*e economy gre) 8y $.9 percent in t*e 9irst *al9 o9 20016 8ut *ad a reduction in t*e gro)t* rate in t*e second *al9 o9 2001 as t*e economic slump in t*e de(eloped )orld a99ected C*inese e7ports6 )it* import gro)t* also slig*tly slo)ing. Ne(ert*eless6 reported @.& gro)t* remains strong despite t*e )eakening e7port sector. ,*ere *as 8een a strong increase in pri(ate consumption and 9i7ed in(estment6 re9lecting strongly rising incomes. C*ina *as not 8een a99ected 8y t*e )eakening glo8al economy as some o9 its Q0sian ,igerQ neig*8ors.

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,*ree consecuti(e years o9 e7pansionary 9iscal and monetary policy as )ell as 9ast-gro)ing domestic demand *elped C*inaIs economy escape t*e )orst e99ects o9 contagion 9rom t*e 0sian and -ussian 9inancial crises and t*e glo8al recession o9 2001. .uring t*e period6 t*e country *as maintained t*e peg o9 its e7c*ange rate to t*e J% dollar6 continued to attract strong e7ternal in(estment and ac*ie(ed ro8ust gro)t*. C*ina *as su8stantial assets and ad(antages to con9ront 9uture c*allenges. ,*e country *as mo8ili=ed large in9lo)s o9 9oreign direct in(estment and *as an enormous potential market o9 ne)ly empo)ered consumers )it* rapidly rising incomes.

+orean 0oreign 1irect 2nvestment 80129 into C(ina

In recent years6 attracting 9oreign in(estment *as *ad an irreplacea8le status in economic de(elopment in C*ina. /or t)enty years6 C*ina *as ac*ie(ed strong economy gro)t*6 social de(elopment and impressi(e impro(ement o9 li(ing standards6 )*ic* )ere )itnessed 8y t*e )orld. C*ina *as 8ecome a popular country 9or 9oreign in(estment. .uring 20026 C*ina )as t*e )orldIs leading recipient o9 9oreign direct in(estment L/.IM6 netting o(er ;!3 8illion. C*ina remained one o9 t*e de(eloping )orldIs main locations 9or /.I6 attracting more capital t*an any o9 its neig*8ors in 0sia. 09ter C*ina:s accession to t*e +orld ,rade 'rgani=ation L+,'M6 t*e go(ernment agreed to gi(e 9oreign companies increasing le(els o9 market access 9or t*e 9ollo)ing 9i(e years. /ollo)ing C*inaIs entry into t*e +,'6 t*ere )ill 8e tremendous 8usiness opportunities 9or 9oreign companies in a large num8er o9 industries6 including t*e automo8ile industry. C*ina *as reduced its tari99 on automo8iles to an a(erage rate o9 2!H6 and t*e import tari99 on auto parts to an a(erage rate o9 10H. 0ll reductions )ill 8e completed 8y Fanuary 16 200"6 )it* 10H o9 reduction eac* year starting 9rom t*e year o9 2000. 1!

C(ina3s Current Automo,i"e 2ndustry Condition

C*inaIs current automo8ile industry is in a state o9 undergro)t*. 5any car manu9acturers cannot meet t*eir 1uotas6 and t*eir production capacity *as 8een idle 9or long periods o9 time. /actories *a(e since 8een )aiting to stimulate t*e demand and gro) t*e market 9or automo8iles. ,*ere are no) a8out 2! 9actories producing (arious types o9 automo8iles nation)ide. C*ina *as gro)n into t*e 9rame)ork o9 a market economy o(er t*e past couple o9 decades. 4o)e(er6 t*e automo8ile industry6 one o9 t*e most competiti(e industries in C*ina6 still remains under a planned economy system. 0nd so6 )it*out competition in its real sense6 t*e automo8ile industry )ill ne(er gro) up and mature.

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In t*e last couple o9 years or so6 t*ere *as 8een some steady de(elopment and progress in t*e auto industry. ,*e introduction o9 mass production and 9urt*er reconstruction *as 8roug*t a8out a 8olstering o9 t*e industry and its economic 8ene9its are 8eginning to s*o). In 20026 t*e (olume o9 auto sales increased to 2.1! million cars6 a yearly a(erage increase o9 "."3H 9rom 1.4" million in 199!.

C(ina3s Automo,i"e 2ndustry 4ut"ook

,*e automo8ile industry in C*ina *as a (ery promising 9uture. ,*ere *as increasingly 8een a 8oom in t*e automo8ile industry6 and increasing demand 9rom t*e local market presents great potentials to 9oreign companies. 4o)e(er6 9oreign companies *a(e 9ound great di99iculty in accessing t*is market and dealing )it* C*inese go(ernment 8odies and companies. +it* 1uick de(elopment and 9urt*er re9ormation o9 t*e C*inese economy6 t*e auto industry s*o)s ne) and strong signs. ,*ere *as 8een a concentration on 8oosting t*e production o9 units on a yearly 8asis> in(estments in ne)6 distracting pro3ects *a(e 8een minimi=ed. 0lso6 t*e recent implementation o9 mass production *as *elped to meet t*e *ig* demands 9or cars. 5anu9acturing tec*nology *as also 8een en*anced6 resulting in 8etter cars and car parts. 0ll t*ese signs point to a positi(e outlook 9or t*e automo8ile industry in C*ina in t*e 9uture.

Asian 0inancia" Crisis

Summary%out* <orea 9aced a ma3or economic crisis and su8se1uent la8or unrest in 199$. 0 general strike )as called to oppose a proposed amendment to t*e la8or la) t*at6 on t*e 1$

prete7t o9 ensuring international competiti(eness o9 t*e <orean economy6 )ould result in massi(e layo99s. .ue to t*e 9inancial crisis6 t*e year ended )it* t*e 8iggest-e(er I5/ 8ailout. e9ore t*e economic crisis o9 199$6 %out* <oreaIs post)ar economy *ad 8een t*e en(y o9 most de(eloping countries. y using t*e Fapanese model o9 *ig* sa(ings6 close cooperation 8et)een go(ernment and 8usiness6 and e7port-oriented gro)t*6 t*e country 1uickly trans9ormed itsel9 9rom a poor )ar-torn nation into an industrial and tec*nical po)er*ouse. @N& per capita in %out* <orea *ad risen 9rom a mere J%;200 in 19"0 to more t*an J%;116!00 8y 199". ut rapid gro)t* *id a muc* darker side o9 de(elopment. Close cooperation 8et)een go(ernment and 8usiness also 9ostered a system o9 corruption and speculation. ,*e <orean economic crisis escalated t*roug* a series o9 marked e(ents in 199$: 8usiness 8ankruptcies and employment insecurity> a s*arp rise in interest rates6 dramatic 9luctuations o9 t*e e7c*ange rate6 and a collapse in stock prices> e7odus o9 9oreign currency6 a contraction o9 9oreign 8ank loans and gro)ing di99iculty in 9oreign de8t settlements. #ac* step in t*e escalation o9 t*e crisis 8roug*t t*e <orean economy closer to an o(erall meltdo)n. ,o stem t*e crisis6 <orea 8egan negotiating )it* t*e I5/ 9or a *uge 8ailout. In .ecem8er 199$6 %eoul agreed to a J%;!$ 8illion rescue package6 8ut t*e I5/ insisted t*e aid 8e e1uated )it* re9orms in %out* <oreaIs 9inancial system. ,*e c*anges endorsed 8y t*e I5/ are e7pected to cause mass unemployment. 0ccording to t*e National %tatistical '99ice6 t*e nationIs 3o8less rate reac*ed 3.1H last .ecem8er6 t*e *ig*est 9igure in !4 mont*s.

18

,*e go(ernment announced t*at t*e economic gro)t* rate 9or 1998 is e7pected to 8e around 3H and unemployment at 3.9H. 4o)e(er6 (arious ot*er pri(ate economic researc* institutions *a(e presented a muc* more pessimistic outlook. .ae)oo #conomic -esearc* Institute 9orecasts 1998 economic gro)t* rate o9 2.2H and unemployment rate at !.0H. /rom t*ese 9igures6 it is possi8le to estimate t*at unemployment )ill reac* a8out 1.2 million people6 a s*arp increase 9rom t*e current le(el o9 4$06000. )ecovery09ter making a strong reco(ery in 1999-2000 9rom t*e e99ects o9 t*e 0sian 9inancial crisis in 199$-19986 %out* <oreaIs economy )as negati(ely a99ected 8y t*e glo8al economic slo)do)n o9 2001-20026 8ut *as 8egun to reco(er in 2002. @ro)t* in real gross domestic product L@.&M is pro3ected at !.8H 9or 20026 up 9rom 3.3H in 2001 8ut do)n 9rom t*e 9.2H ac*ie(ed in 2000. ,*e reco(ery *as 8een 9uelled 8y domestic demand6 e(en t*oug* e7port gro)t* *as 8een some)*at )eak. Increased go(ernment spending6 largely on in9rastructure pro3ects6 *as 8een a ma3or contri8utor to increased domestic demand. In t*e )ake o9 t*e 0sian 9inancial crisis6 %out* <orea 8egan an economic re9orm program designed to address some o9 t*e conditions t*at made its economy (ulnera8le. 5ost importantly6 t*e %out* <orean go(ernment *as 8egun to 8reak t*e *old o9 t*e c*ae8ols Llarge6 multi-industry conglomeratesM o(er t*e 9inancial sector. ,*e lack o9 an Qarms lengt*Q 8usiness relations*ip 8et)een 8orro)ers and lenders *ad led to many %out* <orean 9inancial institutions *a(ing a (ery large ratio o9 non-per9orming loans. +*ile t*ere is no intention o9 9orcing t*e c*ae8ols to di(est t*eir 9inancial su8sidiaries6 t*e go(ernment *as increased regulation to pre(ent c*ae8ols 9rom ar8itrarily c*anneling

19

money into ot*er su8sidiaries. C*ae8ols also *a(e 8een pressed to spin o99 t*eir non-core 8usinesses and to rationali=e t*eir corporate structures. ,o stimulate domestic demand6 t*e %out* <orean go(ernment under &resident <im .ae-3ung enacted a package o9 ta7 cuts directed at lo)er and middle-income )orkers. Jnder its ne)est president6 t*e %out* *as em8arked on a t*oroug*going program o9 economic re9orm. ,*e economy *as opened up to s*ort- and long-term capital 9rom a8road. Fo8s are less 3ealously protected t*an t*ey )ere. 5inority s*are*olders no) *a(e po)ers to 1uestion managers. %tarting t*is year6 companies )ill *a(e to comply )it* international accounting standards. ,*e super(ision o9 t*e 9inancial system *as 8een o(er*auled to meet international norms. ,o 3udge 8y t*e economic indicators6 t*ese measures *a(e 8een une7pectedly success9ul. In t*e 9irst 1uarter o9 t*is year @.& )as 4."H up on a year earlier. ,*e )on is 8ack to 161$0 against t*e dollar6 and t*e stock market is 8ack to pre-crisis le(els. #7ports *a(e 8egun to rise again. %tocks *a(e 8een run do)n and industrial production *as perked up. /inancially6 %out* <orea is more integrated into t*e )orld economy no) t*an it )as in 1994. /oreigners are ma3or players in t*e capital markets6 accounting 9or nearly 40 percent o9 stock market transactions6 and %out* <orean residents *a(e greater opportunities to mo(e t*eir 9unds a8road. ,*e use 8y %out* <orean 9inancial 9irms o9 o998alance s*eet transactions and 9inancial deri(ati(es6 )*ic* did not e7ist in 19946 is e7panding rapidly. +*ile it is true t*at t*e %out* <orean stock market actually rose during t*e last crisis6 t*e e7panded role o9 9oreign participants and t*e increased

20

comple7ity o9 t*e 9inancial transactions mean t*at t*e market today is 9ar less suscepti8le to political inter(ention t*an it )as a decade ago.

Hyundai 0inancia" Ana"ysis

2ntroduction,*e collapse o9 t*e 0sian market 8u88le in 199$ )as more t*an 3ust a de(aluation o9 0sian companies and markets. ,*e e99ects o9 t*is crisis 9orced t*ese companies to ree(aluate t*eir 9inancial and in(estment position in t*eir o)n countries. &re(ious to t*e market cras*6 <orean6 and ot*er 0sian markets )*ere relati(ely success9ul. 4o)e(er6 underlying all t*e success o9 t*ose companies in 0sian markets )as 8asically an ine99icient economic trend o9 reckless 8orro)ing and o(er(aluation. 0t t*is point6 t*e ripple e99ect took into action and <orean companies6 including its 8iggest automaker6 4yundai 5otor Corp6 su99ered 9rom o(ercapacity and smaller companies like <ia 5otor *ad no c*oice 8ut to 3oin t*eir ri(al6 4yundai. ,o o99set t*e negati(e e99ects t*at t*is crisis caused6 4yundai 5otor Corp. )as 9orced to in(est in ot*er countries to maintain a positi(e pro9it margin. ,*is not only *elped t*eir 9inancial outlook6 8ut it also made it clear to ot*er manu9acturers t*at 4yundai )as a legitimate glo8al player. %ince t*e 0sian market crisis6 4yundai *as e7perienced an increase in re(enues 9or t*e past 9i(e years. #(idence points to 4yundai:s commitment to glo8al e7pansion as a main 9actor 9or t*is success. +it* ne) manu9acturing plants in India6 C*ina6 #urope6 and t*e Jnited %tates6 and 3oint (entures )it* ot*er automakers in di99erent countries6 4yundai *as 8een a8le to stay a9loat in t*e (olatile 9oreign car market. 4yundai also *as its ne) product de(elopment strategy to t*ank 9or its 9inancial success. ,*is 8ecame e(ident in 2002 )*en 4yundai announced 3oint (entures )it* .aimlerC*rysler and

21

5itsu8is*i to produce ne) tec*nology and automo8iles. %ince t*e crisis6 4yundai *as in(ested a total o9 ;".2! 8illion and plans to in(est e(en more in t*e 9uture to continue its glo8al success. 1etai"ed 0inancia" Ana"ysis,*e year ending in 20026 4yundai:s sales topped 24 trillion )on )*ic* translates into appro7imately ;20 8illion. %ince t*e 0sian crisis6 4yundai *as 8een a8le to more t*an dou8le its sales in t*e past 9i(e years6 a 9eat t*at is almost un*eard in any industry6 especially in an industry )*ere (olatility and trends are unpredicta8le and t*e competition is 9ierce. 0 primary 9actor in t*is su8stantial gro)t* is t*e e7porting 4yundai *as done )it* ot*er emerging market countries and in de(eloped countries. #7porting accounts 9or almost *al9 o9 all automoti(e units sold in 2002. Interestingly6 4yundai *as 8een a8le to ac*ie(e 9inancial ratios like t*is across t*e 8oard. 4yundai:s assets6 re(enue6 num8er o9 units6 return on sales6 and net income *a(e all almost dou8led since 199$. 0s mentioned 8e9ore6 t*e 0sian 9inancial crisis: origin came 9rom reckless 8orro)ing 8y companies t*at did not look muc* to t*e 9uture e99ects o9 t*is. Jn9ortunately6 4yundai )as one o9 t*ose de8t *ungry corporations. 4o)e(er6 like any resilient corporation6 4yundai )as a8le to learn 9rom t*eir mistakes and corrected t*e pro8lem almost immediately. -at*er t*an 8orro) 9rom unsta8le treasuries6 4yundai turned to partners*ips and e1uity to 9inance t*eir glo8al strategy. 0t t*eir de8t-ridden peak6 4yundai:s de8t-to-e1uity ratio )as close to 300H6 currently6 *o)e(er6 t*ey *a(e a ratio in t*e lo)er 8ound o9 !0H. 0 lot o9 t*e success t*at contri8uted to t*is tremendous gro)t* is t*eir a99iliate companies in )*ic* t*eir o)ners*ip (aries. 4yundai *as interest

22

in o(er a do=en a99iliates including internet companies6 4yundai 5otor in countries suc* as C*ina and @ermany6 and c*emical companies. ,rading on <orea:s <%# composite inde76 4yundai 5otor Corp trades at 246000 )on )it* an a(erage (olume o9 1.! million s*ares. 4yundai does pay a di(idend o9 8!0 )on6 )*ic* is a common practice in t*e automoti(e industry 8ot* in domestic and 9oreign markets. +it* a price-to-earnings ratio o9 !.036 4yundai does lag compared to t*e competition. ,*e industry:s a(erage &R# is appro7imately 21."!6 a relati(ely lo) &R# )*en you look at conglomerates suc* as /ord6 @eneral 5otors6 or .aimlerC*rysler. ,*e (ast di99erences 8et)een t*e &R# ratios could 8e e7plained 8y a couple o9 9actors. a cyclical industry6 t*e &R# ratio )ould not 8e a good 8enc*mark to compare t*ese companies. 0 more accurate ratio t*at one could use )ould 8e t*e &rice-#arnings@ro)t* ratio. %ince 4yundai is in an emerging market and *as e7perienced unprecedented gro)t* in t*e past 9i(e years or so6 a &#@ ratio )ould incorporate t*e gro)t* aspect to t*e (aluation regression. :o"dman Sac(s 2ntegrated Mode" 2nputsRisk Free Rate: ,*is (aluation model uses t*e J% 30 year risk 9ree rate o9 4.91H. Beta: ,*e 8eta in t*is (aluation model calls 9or a correlation 8et)een t*e <orean market 8eta and t*e J% %E& !00 inde7. ,aken 9rom t*e c*art gi(en out in ?ecture 96 t*e <orean 5arket is correlated .41 (ersus t*e %E& !00. ,*e 8eta represents an accurate depiction o9 market correlation. %ince <orea is an emerging market6 an 0merican in(estor must 8e a)are t*at in(esting in t*is country does carry some risk6 especially a9ter t*e 199$ 0sian 9inancial crisis. eing

23

Risk Premium: Instead o9 using t*e J% risk premium o9 4.89H )*ic* represents t*e geometric mean o9 t*e *istorical returns 9rom 19"16 )e decided to use a risk premium o9 9.44H. 'ur reasoning 9or t*is c*ange primarily deals )it* our assumption t*at t*e pre(ious risk premium )ouldn:t 8e an accurate representation o9 returns in t*is particular model. ,*e latter risk premiums are t*ose returns only 9rom 19916 a reasona8le c*ange 8eing t*at )e )ere (aluing an emerging market company. Sovereign Yield Spread: ,o calculate t*is spread6 )*ic* is crucial in t*is model6 )e su8tracted t*e 10 year J% 8ond rate o9 3.8$H 9rom t*e 10 year <orean 8ond rate o9 8.80H. 0lt*oug* )e could only 9ind a 3 year <orean 8ond rate6 )e prorated t*is rate o(er 10 years. Discount rate: Jsing t*e 9ormula 8elo)6 )e 9ound an appropriate cost o9 e1uity 9or 4yundai 5otor Corp o9 13.$1H.
R = r f + SYS + m

0t 9irst glance6 t*e cost o9 e1uity 9rom an 0merican in(estor:s stand point is relati(ely lo) 9or an emerging market company. 4o)e(er6 as descri8ed in our pre(ious reports6 4yundai is e7periencing tremendous gro)t* and is an automoti(e leader in pro9it margins. <ey partners*ips6 a gro)ing economy6 and increased market s*are also attri8ute to t*e attracti(eness o9 t*e 9irm. Va"uation'ur (aluation o9 e1uity started )it* t*e estimation o9 gro)t*. ?ooking at analysts: estimations ranging 9rom 2.!H to 9H6 and doing our o)n estimation6 )e estimated an appropriate gro)t* rate o9 $H. 'riginally6 )e t*oug*t it )ould 8e 8est to *a(e a lo)er gro)t* rate> *o)e(er6 it is our assumption t*at 4yundai is a sta8le company

24

t*at *as enoug* earnings and e7pansion potential to increase t*eir gro)t* 9or at least t*e ne7t 10 years. ?ooking at t*e 8alance s*eets o9 4yundai6 )e 9ound t*at t*e 9ree cas* 9lo) to e1uity is appro7imately 420 8illion )on. Jsing t*e @ordian @ro)t* sta8le gro)t* .C/ model 9or e1uity (aluation6 )e 9ound t*e (alue o9 t*e company as ".$ trillion )on. 4yundai6 *a(ing 219 million s*ares outstanding6 translates into a target price o9 306"0!.44 )on. Currently6 4yundai 5otor Corp L,icker: 0!380.<%M6 last traded at 2!6000 )on on 5arc* 286 2003.

CD"it& Eal"ation on F&"ndai Motor Cor#

.oldman Sachs Integrated Model In#"ts$
Riskfree Rate 4.91% Beta Korean MSCI World Beta So"rce Risk Premium ,++,-200, So"rce Market Value of Equity Market Ca# Shares 4"tstanding Share !rice So"rce Government Rates ,0 5ear 8S Bond 9ate ,0 5ear Korean Bond 9ate "overei#n $iel% "&rea% So"rce 'is(ount Rate )ormula r= rf>S5S>?@8S Market !remi"mA .ro:th 9ate$ 7ree Cash 7lo: to CD"it& 2002$ CD"it& Eal"ation$ 7C7t>,%@r-gA !rice !er Share$ Gct"al !rice 3%38%03 9ecommendation$ B85 0.41 Bloomberg as of March 28, 2003 Information taken from J ! Mei htt#$%%#ages stern n&" ed"%'(mei%b)0%*+s, ##t .eometric a/erage from 0amadoran htt#$%%#ages stern n&" ed"%'adamodar%#c%datasets%histim#l 1ls

9.44%

2,)33,000,000,000 00 2,+,080,000 00 W22,000 5ahoo6 7inance as of March 28, 2003 3. !% . 0% 4.93% Bloomberg Website ::: b"siness:eek com$%2000%00;02%b3<<3222 htm S5S = *ocal Market Bond 9ate - 8S Bond 9ate S5S 7orm"la taken from J ! Mei lect"re March ,0, 2003 .oldman Sachs Integrated 7orm"la

13.!1% 3 00B )20,200,000,000 00 <,302,03+,+38,00< <8 30*+0,.44 22,000

Information taken from 0e"tsche Bank Eal"ation of F&"ndai Motor

Korean Won Korean Won F&"ndai is "nder/al"ed

4ur "ook on Hyundai Motor Co!?ooking closely at t*e 9inancials o9 4yundai 5otor Company and its competitors6 t*e analysis pro(es t*at 4yundai is )ell on its )ay to accumulating glo8al presence t*roug* sales. 0lt*oug* 4yundai:s market s*are in t*e glo8al economy is relati(ely (ery small compared to t*e Jnited %tates and #uropean giants6 t*eir continued 3oint (entures 2!

and 9oreign in(estments )ill allo) t*em to compete. In 9act6 4yundai:s net pro9it margin is *ig*er t*an most all o9 t*e a9orementioned companies. 0lt*oug* t*e 9inancial crisis *as impacted nearly e(ery 0sian company6 it *as only dented 4yundai:s 9inancial standpoint. 'ne can also argue t*at t*e crisis )as a positi(e e(ent 9or t*e long run o9 t*is6 and ot*er 0sian companies 8ecause it 9orced t*ose companies to ret*ink *o) t*ey do 8usiness.

So"utionProject Va"uation09ter doing t*oroug* researc* in 8ot* t*e emerging markets o9 <orea and C*ina6 )e *a(e completed a pro3ect (aluation 9or 4yundai- ei3ing 0utomoti(e 3oint (enture. 'ur (aluation is 8ased on many assumptions o9 4yundai 5otor Corp6 <orea and C*ina:s automoti(e industry6 trade agreements6 and cost o9 capital. ,o implement a strategy t*at )ill most e99iciently resol(e t*is pro8lem6 )e *a(e done a t*oroug* in(estigation o9 all aspects related to t*is pro3ect. %peci9ically6 )e *a(e done (aluations La8o(eM on 4yundai 5otor Corp6 and to get a sense o9 9irm status6 )e *a(e done a (aluation on t*e pro3ect itsel9 and completed a compre*ensi(e automoti(e analysis in 8ot* countries. 2nputsCash-flows: %ince t*e pro3ect is a relati(ely straig*t9or)ard case6 )e made t*e assumption t*at 4yundai:s listed in(oiceR5%-& 9or t*eir %onata and #lantra units )ere glo8al prices. 0s suc*6 using t*e J% dollar as a currency6 )e 9ound t*e cas* 9lo)s 8y multiplying t*e pro3ected production units o9 eac* car 8y t*e 5%-& price 9rom 4yundai. 09ter 9inding t*is re(enue stream6 )e calculated t*e cost o9 eac* car 8y using 4yundai:s

2"

*istoric pro9it margin per car o9 20H. 'nce t*e pro9it per car )as calculated6 )e t*en split t*ose pro9its per year 8y !0H 8ecause o9 t*e assumption t*at ei3ing 0utomoti(e )ould take t*eir s*are o9 pro9its. 0lso6 it is important to kno) t*at 4yundai:s ;2!0 million and ;1.1 8illion in(estments in 200! and 20106 respecti(ely6 are 4yundai:s in(estment s*are into t*e pro3ect6 not t*e total in(estment re1uired 9or t*e )*ole pro3ect. Cost of Capital: In our pre(ious (aluation o9 4yundai6 )e calculated t*e relati(e cost o9 capital 9or all 4yundai:s 9uture pro3ects o9 13.$1H. +e 8elie(e t*at t*is is an appropriate discount rate to use in t*is particular pro3ect. eing t*at <orea and C*ina s*are many

similarities in economic gro)t*6 9inancial markets6 and risk6 t*e cost o9 capital 9or t*is (enture into C*ina remained at 13.$1H. It is also important to assume t*at )e are (aluing t*is pro3ect 9rom an 0merican in(estors: perspecti(e t*us t*e pre(ious assumptions o9 t*e cost o9 capital still apply. Production: @i(en t*e details o9 t*e production units per year in 200! and 20106 )e prorated t*e potential production capacity 9or eac* year in 8et)een. %tarting at 1006000 units 8y 2003:s year end and t*e pro3ected 2006000 units 8y 200!6 )e 9ound t*at t*e gro)t* in eac* year in 8et)een )ould increase 8y !06000 unit increments. /rom 200! to 20106 )e pro3ected a gro)t* o9 "06000 units per year until t*eir goal o9 !006000 8y 2010:s year end.

2$

'0) Valuation on 1yun%ai5Be6in# 7uto 8oint Venture in 03ina $ear.nitsClantra$ Sonata$ 2003 ,00,000 20,000 20,000 200) ,20,000 32,000 32,000 2002 200,000 ,00,000 ,00,000 200< 2<0,000 ,30,000 ,30,000 2003 320,000 ,<0,000 ,<0,000 2008 380,000 ,+0,000 ,+0,000 200+ ))0,000 220,000 220,000 20,0 200,000 220,000 220,000

Revenue/n Millions Clantra H I ,,,23) 00 I 2<3,300 I 8)2,220 I ,,,23,)00 I ,,)<2,<20 I,,803,8)0 I2,,)2,0<0 I2,)80,280 I2,8,8,200 Sonata H I ,3,822 00 I <+,,,00 I ,,03<,<20 I ,,382,200 I ,,3+<,8<0 I2,2,,,220 I2,<2<,,80 I3,0)0,8)0 I3,)22,200 0ostClantra H I +,0,+ 20 I Sonata H I ,,,023 <0 I ProfitClantra$ Sonata$ Jotal$ 1yun%ai2s "3are 20B Share of !rofits$ Cost of ca#ital$ 4PVIn/estments$ Cashflo:s$ !E of !lant$ K!E

)20,+<0 I <3<,))0 I +0,,+20 I ,,,32,)+< I,,))3,032 I,,3,3,<)8 I,,+8),22) I2,22),800 222,880 I 82+,320 I ,,,02,3<0 I ,,)33,)88 I,,3<+,2,< I2,,00,+)) I2,)32,<32 I2,3<),)00

I I I

,,2,3)0 I ,<+,,,0 I 222,)80 I 2+3,,2) I 3<0,3<8 I )28,),2 I )+<,02< I 2<3,300 ,38,220 I 203,330 I 23<,))0 I 32+,332 I ))2,30) I 222,23< I <08,,<8 I <+,,,00 220,+<0 I 33<,))0 I 20,,+20 I <22,)+< I 803,032 I +23,<)8 I,,,0),22) I,,22),800

,22,)80 I ,88,220 I 220,+<0 I 32<,2)8 I )0,,23< I )3<,82) I 222,,,2 I <23,)00

,3 3,B /n Millions @I220,000A @I,,,00,000A I ,22,)80 I ,88,220 I 220,+<0 I 32<,2)8 I )0,,23< I )3<,82) I 222,,,2 I <23,)00 I ,,0,32, I ,)2,2<+ I ,30,<+0 I ,+2,,)3 I 2,,,2,8 I 220,280 I 22),<,) I 22),)<8 I,22,<33 )2 !4SIJIEC6666

Conc"usion09ter doing a .C/ (aluation o9 t*e 4yundai- ei3ing 5otor pro3ect6 )e get a positi(e N&2 o9 ;1!26"3364!0 9or t*e 8 year pro3ect. 0lt*oug* t*is (aluation may not 8e entirely accurate 8ecause 9actors like in9lation6 political6 social and economic risk are not )*olly accounted 9or6 )e 8elie(e t*at it is a reasona8le and rational (aluation and )ill o99er a re9erence point 9or t*e pro3ect. In t*e 8usiness )orld6 especially in t*e emerging markets6 anyt*ing can *appen. +*at 4yundai must reali=e )*en in(esting so *ea(ily in C*ina6 is t*at i9 t*e pro3ect 9ails 9or some reason6 )eat*er it 8e 8ecause o9 macro or micro 9actors6 it )ill 8e a sunk cost. -arely )ill you 9ind ot*er companies or countries t*at are )illing to 8uy a plant t*at is in distress. <eeping all t*is in mind6 4yundai must make a decision on t*eir plans 9or t*e 200! e7pansion. It is our 8elie9 t*at 4yundai s*ould (enture into t*is relati(ely ne) emerging market to capture t*e market and 8ene9it 9rom

28

t*e 9irst mo(er ad(antage. ,*oug* t*e risks in(ol(ed into t*is pro3ect are great6 t*e 8ene9its t*at can 8e reaped out)eig* t*e risk in our opinion. Jltimately6 4yundai )ill *a(e to 9orm synergies )it* ei3ing 5otor and t*e C*inese go(ernment on all le(els o9 8usiness and production. 5anagement must make a deli8erate e99ort to adapt to t*is en(ironment 9or t*e t)o companies to 8e success9ul. 4o)e(er6 4yundai *as already in(ested in 9our ot*er plants in C*ina and )ill *a(e in(alua8le kno)ledge o8tained t*roug* t*ose in(estments to 8ene9it t*eir 8iggest in(estment in t*is (enture )it* ei3ing 5otor. Conse1uently6 4yundai:s attraction 9or in(estor:s in t*e J% and a8road )ill increase su8stantially. In our pre(ious (aluation o9 4yundai 5otor Corp6 )e determined t*at t*e company )as under(alued. ,*eir operations in C*ina and ot*er emerging markets )ill only increase t*eir 9irm (alue6 contri8uting to t*e sta8ility and attracti(eness o9 t*e 9irm 9or in(estors.

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