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Customer LoginsHyundai Motor posts 10.8% y/y drop in Q1 net profit
Overall production of passenger cars, trucks and buses declined 6.9% y/y during February, partly weighed down by Toyota's nationwide output shutdown
- Significance: During the first quarter of 2016, Hyundai's net profit declined by 10.8% year on year (y/y) to KRW1.77 trillion (USD1.54 billion) on weaker global sales.
- Implications: Hyundai depends on overseas markets for nearly 85% of its global sales volumes and has experienced severe pressure from global automakers' rising competition and emerging markets' slow economic growth.
- Outlook: For 2016, Hyundai is banking on the launch of new and updated vehicles, in both its domestic and overseas markets, to achieve its goal of selling 5.01 million units globally.
Hyundai today (26 April) announced that its net profit declined 10.8% year on year (y/y) to KRW 1.77 trillion (USD1.54 billion) in the first quarter of 2016, down from KRW1.98 trillion during the same period of 2015. Operating profit dropped 15.5% y/y to KRW1.34 trillion, although sales revenues climbed 6.7% y/y to KRW22.35 trillion. Automotive division sales revenues gained 4.3% to KRW17.24 trillion, while the division's operating profit slipped 9.3% to KRW1.10 trillion. Hyundai's total assets totalled KRW165.13 trillion at the end of the first quarter and its liabilities KRW97.63 trillion.
In terms of wholesale dispatches, Hyundai registered a decline of 6.4% y/y to 1,107,369 units during the first three months of 2016. Domestic plants accounted for 400,158 units (down 9.2% y/y) and overseas plants 707,209 (down 4.8% y/y). Sales from Chinese plants tumbled 18.2% y/y to 229,000 units while sales from Hyundai's Indian plant gained 2.3% y/y to 145,000. Shipments from the company's US plant rose 6.2% y/y to 94,000 units. Sales from the company's Czech production plant climbed 12.8% y/y to 90,000. Turkey's output jumped 14.7% y/y to 61,000 units. Sales from Russian production plunged 19.7% y/y to 41,000 and Brazilian plant dispatches sank 20.8% y/y to 34,000 units.
By segment, Hyundai sold 739,000 passenger vehicles (down 8.3% y/y) in the quarter, accounting for 66.8% of its total wholesale dispatches. Sales in the recreational vehicle (RV) segment came in at 292,000 units (up 7.6% y/y), giving them a 26.4% share, while commercial vehicle (CV) sales totalled 76,000 units (up 0.7% y/y), for a share of 6.9%.
Outlook and implications
Net profit declined on a 6.4% y/y drop in global sales volumes (retail basis), increased marketing expenses on new models, and higher research costs for developing future products. Globally, Hyundai's vehicle sales in the first three months of 2016 totalled 1.11 million units, with domestic sales up 3.6% y/y to 160,862 units and overseas sales down 7.9% y/y to 946,507. Hyundai relies on overseas markets for nearly 85% of its global sales volumes and has faced severe pressure from rising competition from global automakers and slow economic growth in emerging markets. Furthermore, Hyundai's marketing expenses in the first quarter rose 13.5% y/y to KRW788 billion and its research expenses on future product development increased 13.3% y/y to KRW189 billion.
To achieve future expansion, Hyundai, along with its key automotive affiliates, has set aside as much as KRW81 trillion in capital and research and development (R&D) expenditure through to 2018. In addition, about KRW2 trillion of investment is being planned to boost the group's presence in the global commercial vehicle segment.
Hyundai aims to become a global leader in connected and intelligent cars and has recently announced a roadmap for connected car development. The plan is intended to help the group move to the next level in connectivity, mobility, autonomous vehicles, customer experience, and big data. In this regard, it has signed an agreement with Cisco Systems to jointly develop technology for connected vehicles. Hyundai further plans to launch the IONIQ series of hybrid/electric vehicles in Europe during the third quarter of 2016 and also aims to launch refreshed versions of its Elantra sedan and Grand Santa Fe sport utility vehicle (SUV) this year in Russia.
The automaker and its affiliate Kia are now targeting combined global sales of 8.13 million units in 2016, down slightly from their 2015 sales target of 8.2 million units. Of this total, Hyundai is aiming to sell 5.01 million units and Kia 3.12 million.
According to IHS Automotive forecasts, Hyundai will face a difficult year in 2016, mainly due to tough competition from global automakers and slow economic growth in emerging markets. We expect sales of Hyundai-branded light vehicles and CVs to decline by 1.7% y/y to 4.68 million units in 2016. Hyundai's light-vehicle sales are predicted to slip 1.7% y/y to 4.64 million units this year, while its medium/heavy commercial vehicle sales grow 3.2% y/y to 34,447 units.
About this article
The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.