Hyundai Motor, SK hynix 1Q beat dire forecast but remain cautious

Apr 24, 2020, 09:30 am

By AsiaToday reporters Jung Seok-man & Choi Won-young

Hyundai Motor and SK hynix ended the first quarter better than expected amidst a global pandemic. Experts believe that Hyundai’s new car models and increased demand for IT products and services based on social distancing trend for SK hynix offset coronavirus shock amid a favorable currency environment. However, both companies may face weaker profitability in the second quarter due to unprecedented business uncertainties.

Hyundai Motor announced Thursday that its first-quarter revenue rose 5.6% to KRW25.3 trillion from the same period a year earlier, while its operating profit gained 4.7% to KRW863.8 billion. Its performance was better than expectations. Initially, securities market had predicted the carmaker’s operating profit would drop more than 10 percent.

Its increased operating profit in the first quarter despite its suspended production and export cliff was backed by a ‘golden cycle of new car models.’ “Higher sales of Grandeur, GV80, G80 and Avante models led to increased sales at home in March,” Hyundai Motor said. A weaker Korean won against the U.S. dollar played a significant role as well. The won plunged to 1,193 against the U.S dollar in the first quarter from 1,125 in the first quarter of 2019.

SK hynix also released its beyond-expectations business result for the first quarter. Thanks to robust server demand to power remote working and schooling during social restrictions, the world’s second largest memory chipmaker reported sales of 7.2 trillion won and an operating profit of 800.3 billion won for the first quarter, beating estimates by a large margin. Initially, securities firms predicted that SK hynix would deliver an operating income of 509.1 billion won. However, the company’s 1Q revenue an operating income increased by 3.9% and 239.1% quarter-over-quarter, respectively. Against a year-ago period, earnings plunged 41.4%.

Cha Kin-seok, head of finance (CFO) at SK hynix, said in a conference call that the better-than-expected performance was mainly due to increased sales of server products, improvement in yield rates and cost reduction. “It is estimated that the company gained about 70 billion won in terms of operating profit due to rise in won-dollar exchange rate in the first quarter.”

Both companies achieved a better-than-expected performance in the first quarter; however the prolonged COVID-19 pandemic is expected to increase business uncertainties.

Hyundai Motor expects to face weakening profitability in the second quarter as the impact of COVID-19 continues to hurt auto demand around the world. In fact, sales dropped more than 10% in the first quarter and it is expected to drop sharply by nearly 40% this month. As for liquidity concerns, the company says it won’t have financial difficulties until the end of this year as it holds 11 trillion won in cash reserves. Based on this, the company plans to overcome the crisis through strategic inventory management and production flexibility.

SK Hynix expects strong demand of server clients to continue in 2Q, but remains cautious. The company explained that if COVID-19 pandemic prolonged, it will lead to increased demand volatility of global market and might disrupt production activities.

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