Hyundai profits set to jump

South Korea's top auto maker, Hyundai Motor Co., is expected to post a two-thirds jump in fourth quarter profits on Thursday as recovering domestic demand hoists sales of premium models and steel prices stabilise.

Hyundai, which controls half the South Korean market and sells two thirds of its vehicles abroad, is likely to see earnings improve further in 2006 on higher prices and strong sales of top-end models such as the TG Grandeur, even though export sales may be dampened by a soaring won currency.

"New models will help boost sales in overseas markets this year as they did at home last year," said Stephen Ahn, an analyst at Woori Investment and Securities.

Hyundai is expected to earn a net 641.9 billion won (366 million pounds) in the fourth quarter of 2005, up 67 percent from 384.6 billion a year ago, and up 20 percent higher from 534.9 billion in the previous quarter, according to seven analysts polled by Reuters.

The company paid 196.2 billion in additional corporate taxes in December following a tax probe, but a rise in sales will have more than offset that one-off cost, analysts said.

It is banking on the TG Grandeur, which has seen strong local sales since a debut in May, to repeat its success abroad. It also has high hopes for a new version of its Santa Fe sport utility vehicle, launched in December.

In the United States, Hyundai's biggest overseas market, problems at General Motors and Ford Motor Co. could allow Hyundai and its Japanese rivals such as Toyota Motor Corp. and Honda Motor Co. to sell more cars.

Hyundai, which with affiliate Kia Motors Corp. ranks seventh among global carmakers, aims to sell 15 percent more cars from local and overseas plants in 2006.

WON THREAT

A stronger won poses a threat to Hyundai as the value of exports is cut when converted into the local currency.

Nevertheless, in 2006, Hyundai is expected to post 2.59 trillion won in net profit, up 16 percent from the estimated 2.23 trillion in 2005, according to Reuters Estimates.

"A stronger won is a big risk, but Hyundai should see its earnings grow unless the won rises above 950 per dollar," Ahn said.

Analysts expect raw material costs to fall as steel prices drop, with a global steel supply glut reversing a surge tied to China's economic boom.

At home, a continuing recovery in Asia's fourth-largest economy should lift Hyundai's sales, they said.

Fourth-quarter sales are estimated at 8.0 trillion won, against 7.54 trillion won a year earlier and 6.15 trillion in the July-September quarter.

Shares in Hyundai, South Korea's fourth-biggest stock with a market value of $20 billion (11 billion pounds), have fallen 9.4 percent so far this year on concerns over the stronger won.

The won rose 2.9 percent against the dollar in the fourth quarter and has risen a further 3.1 percent so far this year, hitting eight-year highs earlier in January.

Hyundai opened its first U.S. plant in Alabama last year as part of a bid to shield itself from a rising won. It sees a 51.6 percent rise in sales from overseas plants in 2006 and aims to raise its average overseas car sale price by 4.4 percent.

To further beef up its overseas production bases, Hyundai is in final talks with the Czech Republic to set up a 1 billion euro factory and is also discussing a commercial vehicle joint venture with China's Guangzhou Auto Group.

Hyundai also has factories in China, India, and Turkey.

Its shares rose 19.4 percent in the fourth quarter of 2005, leading a 13 percent gain in the broader market.
Source: © Reuters
By Cheon Jong-woo