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Hyundai logs biggest profit rise in 7 years on forex gain, new models

But earnings recovery could weaken as company braces for potential labour union strike

The Hyundai Motor badge on a Palisade sport utility vehicle. The South Korean carmaker plans to sell this new model in the United States, as it catches up with a shift in US consumer preference to SUVs.


SOUTH Korea's Hyundai Motor Co on Monday posted its steepest quarterly net profit gain in over seven years, as a weaker local currency helped lift US income, while new models boosted domestic sales.

Solid performance at home and in the United States helped offset a sales slump in China, where a slowing economy, trade war with the US and a lack of competitive models prompted the carmaker to suspend production at its oldest factory earlier this year.

However, the earnings recovery could weaken as Hyundai braces for a potential strike by its South Korean labour union that could disrupt supplies of models such as its Palisade sport utility vehicle (SUV) both at home and overseas, analysts said.

April-June net profit rose 31.2 per cent to 919.3 billion won (S$1.06 billion) - the biggest percentage gain since the first quarter of 2012. The result compared with the 1.03 trillion won average of 18 analyst estimates compiled by Refinitiv.

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Operating profit rose 30.2 per cent to 1.24 trillion won while revenue rose 9.1 per cent to 26.97 trillion won, the carmaker said in a stock exchange filing.

Heir apparent Euisun Chung has been steering the profit recovery following six years of decline. The executive vice-chairman is widely considered to be seeking investor support to revisit an ownership restructuring plan as he prepares to take over from his 81-year-old father and chairman.

A previous proposal was scrapped last year following shareholder opposition, notably from US hedge fund Elliott Management Corp.

Helping earnings is a 5.5 per cent drop in the value of the won versus the US dollar this year, the steepest decline among Asian currencies. This has made South Korean exports more price competitive overseas and lifted the value of repatriated profit.

At home, new models such as the Palisade SUV and Sonata sedan helped sales jump 8.1 per cent, in contrast to faltering performance at big name foreign rivals.

The carmaker plans to sell its new Palisade SUV in the US, as it catches up with a shift in US consumer preference to SUVs.

Threatening that plan, Hyundai's South Korean union will next Monday vote on whether to approve strike action after walking out of annual wage talks on Friday.

A prolonged dispute could have a greater impact on sales and earnings this year because, unlike in the past three or four years of slow growth, sales of its new models have been brisk, Samsung Securities analyst Esther Yim said in a recent report.

Hyundai shares pared losses after its earnings announcement, trading flat in line with the broader market. REUTERS

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