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Hyundai posts record Q4 profit, may face challenges in 2011

Hyundai posts record Q4 profit, may face challenges in 2011
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First Published: Thu, Jan 27 2011. 12 12 PM IST
Updated: Thu, Jan 27 2011. 12 12 PM IST
Seoul: Hyundai Motor, South Korea’s top automaker, posted a record quarterly profit, driven by new models and an improving brand image that fuelled strong sales overseas.
The world’s fifth-biggest automaker along with affiliate Kia Motors has had a stellar performance in recent years and its fast growth may now slow as production capacity fails to keep up, analysts said.
Hyundai also faces growing competition at home and abroad from US and Japanese rivals, who are boosting sales efforts as a recovery in demand strengthens.
“Hyundai Motor will continue to do well this year,” said Shim Hong-seop, equity head of Kyobo Axa Investment Managers, which owns shares of the automaker.
“Its new models, including the luxury Grandeur, are promising. The strengthening won is a factor that is not positive, but we do not think it will undermine Hyundai’s overseas sales as long as the exchange rate remains above 1,000 won per dollar,” Shim said.
Hyundai Motor on Thursday reported a 48% jump in October-December net profit to 1.4 trillion won ($1.26 billion), beating a consensus forecast of 1.35 trillion won from Thomson Reuters I/B/E/S.
According to StarMine SmartEstimate, which places more weight on recent forecasts by top-rated analysts, Hyundai was expected to report a record 1.39 trillion won net profit.
The quarterly profit number rose from 945.5 billion won a year earlier and 1.35 trillion won in the third quarter.
The strong results came despite a nearly one-month long sit-in strike by subcontract workers that started in November and disrupted production at one of Hyundai’s South Korean plants.
Hyundai has benefited from a recovery in the US car market and strong sales of its Elantra compact and Sonata sedan, while continuing to fare well in China and other emerging markets.
Toughening competition
US and Japanese car makers should be the prime beneficiaries of a further recovery in the US market, after having been hit by financial distress and a recall crisis during the past two years. US vehicle sales are expected to grow at least 10% this year.
Toyota and Honda both have popular car models -- the Camry and Civic -- undergoing a full remodelling this year, potentially hitting Hyundai’s hot-selling Sonata and Elantra cars.
General Motors is also seeking a comeback in the United States.
Its South Korean unit, GM Daewoo, is also renaming its brand as Chevrolet and plans to launch eight new models this year, in a bid to reinvigorate sales in Korea, the most lucrative market for Hyundai.
Hyundai has already seen its home marketshare falling, hit by the strong performance of Kia and imported cars, especially from Europe.
“The fact that other foreign peers are boosting sales in line with economic recovery means that the pie is getting bigger ... the growth momentum for Hyundai can slow down,” said Park Yong-myung, fund manager at Hanwha Investment Trust Management.
Hyundai shares, which soared 43% last year and hit a record high earlier this month, closed 0.8% lower after the results, in a wider market that was up 0.2%.
Volume growth slowing
Hyundai launched the Grandeur large-sized sedan this month, and plans to roll out more models such as the Velosta utility coupe, which should help improve its profitability, as it targets 8% volume growth this year to 3.9 million cars.
But its plants are already running at nearly full capacity, which will limit dramatic volume expansion.
“Its 2011 strategy is focused on raising earnings not through volume expansion, but through higher selling prices, backed by a combination of an improving brand image and product mix,” said James Yoon, an analyst at BNP Paribas.
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First Published: Thu, Jan 27 2011. 12 12 PM IST