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Powered by SUV sales, Hyundai turns in best quarter since early 2017

Seoul

HYUNDAI Motor Co turned in its best quarterly operating profit in over two years and said it is on track for higher profit margins this year, powered by more sales of sport-utility vehicles (SUVs) such as the Palisade and Kona.

The better-than-expected operating earnings, which raised its share price, hints that efforts by Hyundai Motor Group heir-apparent Euisun Chung to revamp the image of the automaker known for its sedan-heavy lineup are beginning to pay off.

So while overall vehicle sales for the South Korean company held mostly steady on year in the October-to-December period, its bottom line improved as high-margin SUVs made up more of the sales mix - 42 per cent from 37 per cent a year earlier.

Hyundai said it would meet its target for a 5 per cent operating profit margin this year, versus 3.5 per cent in 2019, by selling even more SUVs and launching redesigned versions of some of its best-selling models, the Elantra sedan and the Tucson SUV.

Kim Sang-hyun, head of the finance and accounting division, said on an earnings call: "We understand that achieving this year's operating profit margin of 5 per cent is more important than ever.

"The company views this year as the first to fully establish a virtuous sales cycle by optimising supplies, profits and strengthening brand competitiveness. We will do our best to secure a sustainable revenue base in a difficult business environment."

Sales for Hyundai and affiliate Kia Motors hit a seven-year low last year, as business in China slumped. Their targets were missed for a fifth time, but better numbers have been forecast for this year.

Hyundai expects SUVs to account for about 43 per cent of its sales this year, helped by the launch of its premium SUV brand Genesis in the second half, in addition to the GV80 launched last week.

Lee Jae-il, an analyst at Eugene Investment & Securities, said: "The market has been sceptical of the 5 per cent profit margin target, but the target seems to be achievable, thanks to new Genesis models."

While Hyundai is seeing a recovery in US sales, thanks to demand for new SUVs and a favourable currency exchange rate, its business in China continues to suffer amid a broader slowdown in the world's biggest auto market.

Its passenger car sales in China fell 4.8 per cent on year in 2019.

Hyundai, however, expects its wholesale vehicle sales in China to reach 730,000 this year, from 650,000 vehicles last year.

It also said it was looking for the best time to launch its premium Genesis brand in China and Europe.

For October-December, Hyundai's operating profit was 1.24 trillion won (S$1.35 billion), highest since the second quarter of 2017. It was more than analysts' average estimate of 1.06 trillion won, according to Refinitiv I/B/E/S data.

Hyundai shares closed up 8.6 per cent, versus a 1.2 per cent rise in the wider KOSPI. REUTERS