October 27, 2011 / 5:24 AM / 7 years ago

Hyundai sees rising competition after Q3 profit rise

SEOUL (Reuters) - South Korea’s Hyundai Motor (005380.KS) warned of rising competition and economic uncertainty after it posted on Thursday a 21 percent rise in quarterly net profit, fueled by solid sales gains in the United States, Europe and other markets.

The logo of Hyundai Motor is seen on a car displayed at a Hyundai dealership in Seoul September 1, 2011. REUTERS/Truth Leem

Hyundai, the world’s fifth-biggest carmaker by sales, along with affiliate Kia Motors (000270.KS), also said it will beat its already-upgraded sales target of 4 million units this year, after its global sales rose 9.6 percent in the third quarter from a year earlier.

Once viewed as manufacturers of bland but economical cars, Hyundai and Kia have addressed design and reliability problems in recent years to outperform during the global financial crisis and have become formidable competitors to more established rivals.

Their sales are expected to remain solid in the fourth quarter with new models winning over consumers with attractive prices, features and styling, analysts said.

The South Korean duo will also continue to benefit from the woes of Japanese rivals suffering from a strong yen and floods in Thailand, where some maintain production units, they said.

Still, maintaining sales momentum next year in the face of a slowing global economy, resurgent Japanese automakers, and stretched manufacturing capacity is seen a challenge.

“Tougher competition from recovering Japanese carmakers is inevitable in the short term,” said Lee Dong-geun, a fund manger at Heungkook Asset Management said. “But Japanese firms still have concerns about a stronger yen and the recent floods in Thailand.”

Hyundai on Thursday reported a 1.92 trillion won ($1.7 billion) net profit for the July-to-September quarter, in line with a consensus forecast of 1.89 trillion won from Thomson Reuters I/B/E/S.

That was up from a 1.59 trillion won net profit a year ago and down from 2.31 trillion won in the preceding quarter.


“We expect Japanese rivals to carry out an aggressive sales policy in the United States after normalizing production in the fourth quarter,” said Hyundai’s chief financial officer, Lee Won-hee. “But we will maintain our low-inventory, low-incentive policies and pursue qualitative growth.”

“We believe our Sonata and Elantra are ahead of Toyota’s new Camry and Honda’s new Civic in terms of product competitiveness expect that we will be able to achieve global sales of more than 4 million vehicles this year,” he said.

Hyundai’s president, Chung Jin-haeng, told Reuters on Tuesday that Hyundai and Kia expected to beat their already upgraded combined 2011 sales targets of 6.5 million vehicles, but the growth rate is forecast to slow next year because of capacity constraints.

Lee said he expected global car demand to rise by 4.2 percent to 78.5 million vehicles next year, almost flat from 2011’s growth rate, but said there is a downside risk to the 2012 demand should economic conditions in the United States and Europe deteriorate.

“Hyundai will probably benefit from some operational issues that its Japanese counterparts are facing due to flooding in Thailand, where some production units are located,” said Jung Sang-jin, a fund manger at Dongbu Asset Management.

“Looking at next year however, earnings growth momentum may slow. This is quite natural given that Hyundai has seen very sharp earnings growth in recent years. Hyundai has a stronger presence in the United States than Europe, so the health of the U.S. auto market is one uncertainty,” he said.

Shares in Hyundai Motor closed flat versus the wider market’s .KS11 1.46 percent gain. Its shares have jumped 29 percent this year, outperforming the broader market’s .KS11 8 percent fall.

Additional reporting by Ju-min Park, Jungyoun Park and Meeyoung Cho; Editing by Matt Driskill and Jonathan Hopfner

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