Semiconductor Shortage Causes Q3 Earnings Plunge for Auto Parts Firms... Q4 Brings Mixed Fortunes

"Shipping Freight and Material Prices Expected to Rise in Q4 as Well"

[Asia Economy Reporter Ki-min Lee] Due to the prolonged semiconductor supply shortage, automotive parts companies that saw a decline in their third-quarter earnings are expected to continue facing difficulties in the fourth quarter. Even if the semiconductor supply situation improves compared to the third quarter, profitability is expected to remain challenging due to ongoing cost burdens such as rising raw material prices and increased shipping freight rates.

According to parts industry sources and financial information firm FnGuide on the 7th, Hyundai Mobis, the largest domestic automotive parts company, experienced disruptions in module assembly and parts manufacturing due to the semiconductor supply shortage in the third quarter of this year, and operating profit decreased by 23.5% year-on-year as shipping freight rates also rose.

Mando, the second-largest domestic automotive parts company, also saw its third-quarter operating profit fall by 19.0% year-on-year to 53.2 billion KRW. This was due to a slowdown in chassis and Advanced Driver Assistance Systems (ADAS) sales caused by reduced production volumes at automakers resulting from the vehicle semiconductor supply issues.

Hyundai Wia, which supplies parts such as chassis modules, engines, transmissions, and constant velocity joints (CVJ), posted a 137% increase in operating profit in the third quarter of this year compared to the same period last year, reaching 31 billion KRW. However, due to production disruptions at customers caused by the automotive semiconductor shortage, the results fell 9% short of market expectations and showed a decline compared to the second quarter of this year.

Hanon Systems, which is set to announce its earnings on the 9th, has a third-quarter operating profit consensus of 82.2 billion KRW, down 31.27%. Although it supplies thermal management solutions to major global automakers, vehicle production itself has decreased due to the shortage of automotive semiconductors, similar to Mando.

In the fourth quarter of this year, the semiconductor supply situation is expected to gradually improve, but the surge in raw material prices and rising shipping freight rates are anticipated to significantly impact the parts industry's performance. Some securities firms have lowered earnings forecasts for companies whose fourth-quarter consensus is higher than that of the fourth quarter last year, citing factors such as raw material prices, automakers' production restarts, and increased internal costs.

Hyundai Mobis's fourth-quarter consensus (average earnings forecast) stands at 11.03 trillion KRW in sales and 593.1 billion KRW in operating profit. While sales are expected to increase by 3.03% year-on-year, operating profit is forecasted to decrease by 15.55%. Besides automotive semiconductors, the strong prices of key raw materials such as copper and increased transportation costs, including shipping freight, are cited as the main reasons.

For Mando, fourth-quarter operating profit is projected to rise 6.59% year-on-year to 85.7 billion KRW. However, some expect a 5% year-on-year decline in operating profit, citing a decrease in major new ADAS orders and poor production performance at key customers' U.S. plants.

Securities firms expect Hyundai Wia to continue improving its business structure steadily through measures such as transferring its China engine division to Russia, expanding the proportion of high-profit transmissions and constant velocity joints, and investing in eco-friendly mobility, resulting in a 276% increase in operating profit to 48.2 billion KRW in the fourth quarter. However, Jeong Yong-jin, a researcher at Shinhan Financial Investment, stated in a report, "As volume decreased amid high fixed cost burdens, the decline in profitability was greater than expected," adding, "It is necessary to confirm the expansion of domestic production volume and the normal operation of the Russian engine plant in the fourth quarter."

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