Hyundai Motor, Kia expected to post record second-quarter earnings

Hyundai Motor Co. and Kia Corp. buildings [Courtesy of Hyundai Motor Group]

South Korea’ top carmakers Hyundai Motor Co. and Kia Corp. are expected to post record earnings in the second quarter and could put them in a position to overtake local tech giant Samsung Electronics Co., which recorded an earnings shock due to a downturn in the semiconductor sector.

According to an analysis released Monday by Yonhap News Agency on securities industry forecasts for the last three months, Hyundai Motor’s sales for the second quarter are estimated at 39.92 trillion won ($30.3 billion), up 10.9 percent from 36 trillion won a year ago and operating profit at 3.61 trillion won, up 21.0 percent from 2.98 trillion won.

If the forecast holds true, Hyundai Motor will post the largest quarterly profit ever since the introduction of the International Financial Reporting Standards (IFRS) in 2010, surpassing the previous quarter’s results of 37.78 trillion won in sales and 3.59 trillion won in operating profit. There are even forecasts that the company’s operating profit may exceed 4 trillion won, given that it posted an earnings surprise that beat analyst consensus in the first quarter.

Meanwhile, estimates for sales of Kia are 25.52 trillion won, up 16.7 percent from 21.88 trillion won a year ago, and those for operating profit 2.99 trillion won, up 34 percent from 2.23 trillion won.

If the forecast turns out to be accurate, Kia will have posted its highest results since adopting the IFRS. Some analysts even suggest that the company’s quarterly operating profit may exceed 3 trillion won for the first time.

The combined first and second quarter operating profits of Hyundai Motor and Kia are estimated at 13 trillion. The combined operating profit of the two companies for this year may top 20 trillion won for the first time unless any quality issues seen last year recur.

With the two companies continuing strong performance in the first and second quarters, there are growing chances that they will replace Samsung Electronics, Korea’s all-time No. 1, to rank first and second by operating profits among listed companies.

This strong performance comes on eased shortage of automotive chips that plagued the industry until last year and a shift to a sales portfolio centered on high-margin models. Lower incentives in overseas markets and exchange rate impacts also played a part.

The auto industry sees that the earnings growth of Hyundai Motor and Kia are here to stay for the time being given the favorable factors such as expanding sales from new car releases and lower raw material prices in the third and fourth quarters.

“There are concerns over a peak-out as incentives and currency factors remain uncertain, but inventory accumulation is slow and the business environment continues to be favorable,” said Kim Gwi-yeon, an analyst at Daishin Securities Co.