[Click eStock] "Hyundai Motor Exceeds 4Q Market Expectations, Operating Profit↑ Expected with Increased Sales Volume in 2020"

[Asia Economy Reporter Oh Ju-yeon] KB Securities stated on the 23rd that "Hyundai Motor's profit improvement due to segment upsizing exceeded expectations, resulting in operating profit in the fourth quarter of last year surpassing consensus," and "In 2020, operating profit is expected to continue increasing not due to segment upsizing but due to an increase in sales volume."

Hyundai Motor announced yesterday that its operating profit in the fourth quarter of last year reached 1.2 trillion KRW, a 148.2% increase compared to the same period last year. This is a strong performance exceeding market consensus by 15.5%. By division, automotive operating profit was 1 trillion KRW, financial operating profit was 143 billion KRW, and other divisions' operating profit was 38 billion KRW. The increase in automotive division operating profit (including consolidated eliminations) was 562.4 billion KRW.

Researcher Kang Seong-jin of KB Securities emphasized, "The improvement in sales margin is judged to be the result of increased contribution profit per unit due to segment upsizing," adding, "The average segment of Hyundai Motor in the fourth quarter improved by 2.2% compared to the same period last year."

This year, the core factor for Hyundai Motor's profit increase is expected to mainly come from an increase in sales volume.

Researcher Kang said, "Although the expected increase in operating profit due to the cost base effect is greater, this does not indicate an improvement in the profit-generating ability of the automobile manufacturer," and "The positive exchange rate effect is also an external factor."

However, the effect of increased contribution profit per unit (segment upsizing), which was the main cause of profit growth in 2019, is expected to diminish. This is because the sales proportion of small and mid-sized SUVs will increase.

Researcher Kang stated, "We judge that the 2020 segment mix of Hyundai Motor's shipped vehicles will be similar to the previous year," and "Considering the increase in incentives related to eco-friendly vehicles in Europe, the increase in contribution profit per unit is not expected to drive operating profit growth in 2020."

He added, "Although Hyundai Motor's operating profit is expected to continue increasing in 2020, the core driver of profit growth will shift from segment upsizing to an increase in sales volume."