Hyundai Corporation Faces Uncertainty in New Business Amid Russia-Ukraine Variables

Fluctuating International Oil Prices and Exchange Rates Are Key Factors

[Asia Economy Reporter Hyungsoo Park] Hyundai Corporation, which has passed through the dark tunnel of COVID-19, is showing a trend of performance improvement due to increased trade volume. Given the nature of the trading business, which is sensitive to raw material prices, Russia's invasion of Ukraine presents both a crisis and an opportunity. Hyundai Corporation has embarked on improving its performance based on its strength of over 40 years in the trading business.

As a comprehensive trading company, Hyundai Corporation operates in the global market providing trade and distribution services for transformers, plants, ships, automobiles, steel, chemicals, and other products. It is composed of six business divisions: steel, passenger car parts, commercial energy, machinery and ships, petrochemicals, and others. Each division exports transformers, automobiles, steel, machinery, etc. It also engages in brokerage of ship and plant transactions, domestic sales of imported products, and resource development projects such as oil field development. It has 23 local subsidiaries and 21 overseas branches.

Hyundai Corporation recorded consolidated sales of KRW 3.7825 trillion and operating profit of KRW 35.1 billion last year. Sales increased by 31.3% and operating profit rose by 5.5% compared to the previous year.

Looking at quarterly sales trends, performance was sluggish until the third quarter of last year due to the impact of COVID-19. In the third quarter, sales were KRW 33.4 billion and operating profit was KRW 1.7 billion, down 7.5% and 43.3% respectively from the same period last year. The prolonged effects of COVID-19 reduced demand for gatherings and company dinners, and the meat business division, which accounts for a large portion of Hyundai Corporation’s total sales, was hit hard.

Sales surged in the fourth quarter of last year. In Q4, sales reached KRW 1.1764 trillion and operating profit KRW 10.6 billion, increases of 80.7% and 68.4% respectively compared to the same period last year. Jongryul Park, a researcher at Hyundai Motor Securities, explained, "Thanks to the global economic recovery and increased trade volume, all divisions including steel, petrochemicals, and passenger car parts grew evenly," adding, "The fixed cost burden was reduced due to scale growth."

Hyundai Corporation’s performance is closely linked to the global economy. It is also heavily influenced by international oil prices and exchange rates. The reason for expecting performance improvement this year is the forecast that trade volume will increase with economic recovery. Hyundai Motor Securities estimates that Hyundai Corporation will achieve sales of KRW 859.8 billion and operating profit of KRW 8.2 billion in the first quarter of this year, increases of 14.3% and 17.0% respectively compared to the same period last year. Researcher Park said, "Along with the low base effect in Q1 last year and global economic recovery, all divisions including steel, passenger car parts, commercial energy, and machinery and ships are expected to show balanced performance improvement," and predicted, "The steel division will achieve favorable results in Q1 due to order expansion following demand recovery."

Although the COVID-19 situation is prolonged, considering economic recovery, increased cargo volume, and strong raw material prices, annual sales this year are expected to increase by about 10% compared to last year.

At the regular shareholders’ meeting held in March last year, Hyundai Corporation added four business purposes: manufacturing and sales of automobiles and automobile parts, manufacturing and sales of electric vehicle parts, manufacturing and sales of eco-friendly and composite materials, and construction of hydrogen and other energy infrastructure and related businesses. This was a measure taken considering that growth is limited by relying solely on the core trading business of a general trading company. However, since manufacturing is a newly entered business, it will take time before it contributes significantly to sales.

Hyundai Corporation is pursuing the acquisition of Shingi Intermobile, a first-tier supplier to Hyundai Motor. Although it was selected as the preferred negotiation partner in May last year, the acquisition process is slower than expected. It has established an overseas subsidiary, HY Auto Solution, in Kaliningrad, Russia, and is building a plastic injection and painting factory for automobile parts. Difficulties are expected until sanctions against Russia, which invaded Ukraine, are lifted.

The resource division, which is closely related to raw material prices, consists of the Vietnam 11-2 gas project, Oman liquefied natural gas (LNG) project, Qatar LNG project, and Yemen LNG project. Resource development projects require long periods and large-scale investments from initial exploration through development to commercial production stages. Due to the large losses that can result from development failure, new investments in resource projects must be made cautiously.

The fluctuations in the won-dollar exchange rate caused by the Russia-Ukraine conflict are also variables that can affect Hyundai Corporation’s performance. Foreign exchange risk arises in relation to future expected transactions, recognized assets, and liabilities. To reduce exchange rate risk on foreign currency assets and liabilities, Hyundai Corporation has entered into currency forward contracts with Korea Exchange Bank and others, and accounts for them as short-term trading purposes.

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