Hyundai Kia Motors Faces 'C-Shock' in 2Q Earnings... Hopes for Rebound in Second Half

2Q Operating Profit Forecast: Hyundai Motor -75%, Kia -86% Decline
Impact of COVID-19 Shock Blocking Overseas Exports
Better Performance Than Global Competitors Reporting Losses in Q2
Expect Earnings Rebound from Overseas Demand Recovery in Second Half

[Asia Economy Reporter Suyeon Woo] Dark forecasts have emerged that Hyundai Kia Motors' second-quarter sales, which were blocked from export routes due to the novel coronavirus infection (COVID-19), will decrease by about 20% compared to the previous year. As sales shrink, operating profit is also expected to drop by more than 70%, but from the third quarter, export volumes are expected to recover, creating momentum for a rebound.

According to FnGuide on the 20th, the consensus forecast (average estimate by securities firms) for Hyundai Motor's second-quarter sales this year is 20.9255 trillion KRW, down 22% from the previous year, and Kia Motors is predicted to decrease by 20% to 11.6718 trillion KRW. During the same period, the operating profit consensus is expected to be 307.7 billion KRW for Hyundai Motor and 75.6 billion KRW for Kia Motors, representing decreases of 75% and 86%, respectively.

Hyundai Kia Motors maintained steady performance even in the first quarter when the COVID-19 outbreak began in China, with sales actually increasing (Hyundai Motor 5.6%, Kia Motors 17.1%). Although net profit plummeted, domestic demand held up, barely maintaining the sales growth trend.

Hyundai Kia Motors 2020 Quarterly Revenue Consensus (Unit: 100 million KRW)
※ Q1 is actual revenue, Q2~Q4 are forecasts (F)
(Source: FnGuide)

However, in the second quarter, when overseas factory operating rates fell to about half, the 'C shock' is expected to be fully reflected, and performance is forecasted to hit bottom. Since the COVID-19 pandemic (global outbreak) began in earnest at the end of March, sales in major overseas markets were virtually paralyzed in the second quarter. Europe started mobility restrictions from mid-March, the United States from the end of March, and these measures were maintained until June. India, which implemented a strong full lockdown policy, had zero car sales for the entire month of April.

Along with the paralysis of sales networks, overseas factory operations were also suspended. The global factory operating rates for Hyundai Motor and Kia Motors in the second quarter were only 50.6% and 56.9%, respectively, barely half of normal levels. Some cautiously suggest that due to the fixed cost burden of overseas factories, Hyundai Motor's automotive division may turn to an operating loss in the second quarter. According to Hyundai Kia Motors, overseas sales for Hyundai Motor in the second quarter (April to June) were 460,451 units, down 49% from the previous year, roughly halving, while Kia Motors' overseas sales also decreased by 39% to 351,013 units.

Researcher Eunyeong Lim of Samsung Securities analyzed, "Since March, as the impact of COVID-19 spread worldwide, the biggest hit to automobile demand was in April and May. As companies lowered operating rates to reduce inventory burdens, second-quarter performance, if not in deficit, can be considered relatively resilient."

Hyundai Kia Motors 2020 Quarterly Operating Profit Consensus (Unit: 100 million KRW)
※ Q1 figures are actual sales, Q2 to Q4 are forecasts (F)
(Data source: FnGuide)

However, compared to the results of global competitors who are announcing second-quarter deficit forecasts one after another, Hyundai Kia Motors is relatively holding up well. On the 16th, Daimler announced a second-quarter operating loss of 1.68 billion euros (about 2.3 trillion KRW), and Ford, which recorded a 2 billion USD operating loss in the first quarter, forecasted second-quarter results to be worse than the previous quarter.

Meanwhile, Hyundai Kia Motors' performance in the second half of the year is expected to gradually recover from the second quarter low. As overseas factory operations, which had stopped, resume and the effect of new models reflects not only domestically but also overseas, a sharp performance rebound is anticipated from the third quarter.

The third-quarter expected operating profit consensus for Hyundai Motor and Kia Motors is 793.6 billion KRW and 376.4 billion KRW, respectively, representing increases of 109% and 29% compared to the previous year. This is due to the increased production volume from July at Kia Motors' Georgia plant in the United States for the popular large SUV Telluride, and the fact that Hyundai Kia Motors ranked fourth globally with an 8% share in the global electric vehicle market in the first quarter, indicating growing performance momentum.

Researcher Seonjae Song of Hana Financial Investment said, "If Hyundai Kia Motors' new cars, which received good evaluations in the domestic market, are launched in overseas markets in the second half, sales momentum can be expected. It is also meaningful that they are achieving results in the global eco-friendly vehicle market, which is gaining attention after COVID-19."

This content was produced with the assistance of AI translation services.