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South Korean carmaker Hyundai Motor Co.’s fourth-quarter earnings came out mostly lower than what analysts had expected on Thursday, due mainly to a higher won and a weakening demand overseas.

The Seoul-based group reported a net income of ₩1.3 trillion ($1.21 billion), adding 20.5 percent from 2016’s ₩1.07 trillion.

However, sales were slightly down by 0.2 percent to ₩24.5 trillion ($23.03 billion).  

Operating profit also declined 24.1 percent from ₩1.02 trillion to ₩775 billion ($729 million), missing analysts’ estimate of ₩1.12 trillion.

Shares of Hyundai closed up 1.2 percent higher to ₩158,500 on Thursday, after marking an intraday low of ₩154,000, following the earnings announcement.  

Stronger Won Hurts Hyundai’s Competitiveness and Profits

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Hyundai stated that the won’s strength against the dollar, along with tougher competition in major markets, such as China, as well as increased marketing costs had affected the annual bottom line.

The local currency has strengthened against the greenback and the yen in the fourth quarter. On January 8, it hit a near 3-1/2-year high, which has threatened price competitiveness of South Korean exports and has consumed profits brought back from overseas.   

This has also weakened Hyundai’s competitiveness with Japanese auto groups and reducing the value of its earnings when converted to won.

Analyst Esther Yim said that the company’s profits is likely to continue its down surge movement in the first quarter due to the higher won as well as weak assembly at its home and the US.

Yim added that Hyundai might start making progress in the second quarter through its new vehicles and as the demand in China recovers.

Hyundai Reports Lower Sales in China

Meanwhile, the diplomatic dispute between South Korea and Beijing over Seoul’s decision to launch US missile defense system, Terminal High Altitude Area Defense (THAAD) last year has triggered the carmaker’s shortcomings in revenue in China.

During the fourth quarter, Hyundai managed to sell 785,000 units in China. This was 31.3 percent less than the 1,142,000 units sold in 2016.

While the company is planning on offering more sport utility vehicles (SUVs) in the US and China this year, analysts believed that its new model, the redesigned Santa Fe SUV, might not be introduce to the public on time to considerably boost its sales.

Hyundai now has to deal with possibly lessening its heavy reliance on sedans by releasing more well-known SUVs, such as the Santa Fe, amid long product cycles.     

Reflecting a lower-than-expected fourth quarter earnings result, the carmaker has established sales target of 4.68 million vehicles globally for this year. This is slightly higher than the 4.51 million units sold in 2017.

Hyundai, along with subsidiary Kia Motors Corp. expects their joint revenue to rise 4 percent to 7.55 million vehicles in 2018. The carmakers for the third time fell behind their target of 8.25 million, after stating that they were only able to sell 7.25 million units in the previous year.

Hyundai, which has been unable to meet vehicle sales target for three straight years, expects global demand growth to remain low this year, on account of continued sluggish expansion and growing protectionism in major economies.

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