Hyundai Motor posts its biggest profit gains in over seven years

South Korea’s Hyundai Motor on Monday posted its steepest quarterly net profit gain in over seven years, as a weaker local currency helped lift US income, while new models boosted domestic sales.

Solid performance at home and in the United States helped offset a sales slump in China, where a slowing economy, trade war with the United States and a lack of competitive models prompted the automaker to suspend production at its oldest factory earlier this year.

Net profit for the April-June period rose 31.2 per cent to 919.3 billion won ($780.44 million), which is the biggest percentage gain since the first quarter of 2012.

The result compared with the 1.03 trillion won average of 18 analyst estimates compiled by Refinitiv.

Operating profit rose 30.2 per cent to 1.24 trillion won while revenue rose 9.1 per cent to 26.97 trillion won, the automaker said in a stock exchange filing.

Heir apparent Euisun Chung has been steering the profit recovery following six years of decline. The executive vice chairman is widely considered to be seeking investor support to revisit an ownership restructuring plan as he prepares to take over from his 81-year-old father and chairman.

However, the earnings recovery could weaken as Hyundai braces for a potential strike by its South Korean labour union that could disrupt supplies of models such as its Palisade sport-utility vehicle (SUV) both at home and overseas, analysts said.

A previous proposal was scrapped last year following shareholder opposition, notably from US hedge fund Elliott Management Corp.

Helping earnings is a 5.5 per cent drop in the value of the won versus the US dollar this year, the steepest decline among Asian currencies. This has made South Korean exports more price competitive overseas and lifted the value of repatriated profit.

At home, new models such as the Palisade SUV and Sonata sedan helped sales jump 8.1 per cent, in contrast to faltering performance at big-name foreign rivals.

The automaker plans to sell its new Palisade SUV in the United States, as it catches up with a shift in US consumer preference to SUVs.

South Korea’s Hyundai Motor Co laid out its US sales turnaround plan on Monday with an expanded line-up of sport-utility vehicles (SUV), after posting its biggest quarterly profit jump in seven years.

The automaker forecast its US market share to begin rising again from this year, targeting a year-end share of 4.2 per cent versus 3.9 per cent last year, with sales of its upgraded Palisade SUV starting from the second half. It aims for a US share of 5.2 per cent by 2023.

Solid performance at home and in the United States in the three months through June helped offset a sales slump in China, where a slowing economy, trade war with the United States and a lack of competitive models prompted the automaker to suspend production at its oldest factory earlier this year.

To maintain momentum in the United States — its biggest overseas market - Hyundai said it plans to boost the proportion of SUVs in its US line-up to 67 per cent in 2023 from 51 per cent in 2019, as it works to catch up with a shift in consumer preference.

“It was a surprise when Hyundai revealed an aggressive US turnaround plan, but I don’t see any problem in it meeting its annual sales target there,” said analyst Kim Joon-sung at Meritz Securities.

Hyundai’s revival is being led by heir-apparent Euisun Chung following six years of profit decline. The executive vice chairman is widely considered to be seeking investor support to revisit an ownership restructuring plan as he prepares to take over from his 81-year-old father and chairman.

A previous proposal was scrapped last year following shareholder opposition, notably from US hedge fund Elliott Management Corp.

Since last year, Chung has brought in a flurry of foreign executives in a sweeping reshuffle at a firm dominated by Koreans. Most recently, in April, it appointed an ex-ally of Nissan Motor Co Ltd’s ousted Chairman Carlos Ghosn as global chief operating officer and Americas chief.

In the April-June period, US sales gained 3 per cent while a weak Korean won against the US dollar raised the value repatriated income. At home, new models such as the Palisade SUV and Sonata sedan helped sales jump 8.1 per cent.

The earnings recovery could weaken as Hyundai braces for a potential strike by its domestic labour union that could disrupt supplies of models such as the Palisade both at home and overseas, analysts said.

The union will vote next Monday whether to approve strike action after walking out of annual wage talks on Friday.

Agencies