Hyundai Wia Corp. has bumpy roads ahead in the latter half of this year, but is expected to see its earnings improve starting next year on the back of the growing demand for electric and hybrid cars parts and increased output from new manufacturing facilities.

The automobile parts unit of South Korea’s largest auto group Hyundai Motor Group was hit hard by a rise in production cost and poor performance of its auto parts business that took up 80 percent of its sales in the April to June period this year. Hyundai Wia’s operating profit slid 31.6 percent to 90.8 billion won ($82 million) in the second quarter from a year earlier, mainly because of an increase in fixed costs after opening new plants in Mexico and Seosan, South Chungcheong Province. Its sales also fell 2.7 percent to 1.95 trillion won over the cited period after its exports of engine parts to China plunged and its main customer Kia Motors Corp. saw domestic sales decline 8.8 percent on year in the first half. The financial results were far below the market consensus that had projected its operating profit to be 104.9 billion won on sales of 1.99 trillion won.

Concerned investors started to dump Hyundai Wia shares after the second-quarter earnings announcement, leading its stocks to hit a 52-week low of 82,000 won on July 8. In the first half of this year, the company’s shares were traded in a band between 90,000 won to 110,000 won. Hyundai Wia stocks closed down 1.9 percent, or 1,600 won, at 83,600 won on Tuesday.

The company’s outlook for the latter half is equally dim. The Chinese government plans to extend tax cuts on China-made small-sized cars with engines of less than 1,600 cc to take a toll on the company’s 2,000 cc Nu engine, a key export to China, according to industry observers.

But market analysts are more buoyant for next year. The company plans to expand its production of parts for electric and hybrid vehicles such as electric four wheel drive (e-4WD) for hybrid cars, a system that enables rear wheels driving with an electric motor during initial acceleration and low speed drive (less than 70 kilometers or 43.5 miles per hour) to enhance fuel efficiency and driving stability. It has finished the development of its e-4WD system that is ready for mass production and plans to expand supply of the system to Hyundai Motor Co. and Kia’s hybrid cars.

An official from the company said the company will aggressively promote electric car parts business as many carmakers plan to increase their lineups of hybrid and electric cars. Hyundai Motor announced in June that it would increase the number of its eco-friendly car lineups to 28 by 2020.

The bottom line would also improve as the production costs are expected to fall with a rise in production volume at the company’s new facilities. With demand for turbo engines growing and Kia Motors’ Mexico assembly line starting operation in May, production at Hyundai Wia’s Seosan first plant and Mexico plant is expected to increase. Its diesel engine manufacturing plant, Seosan second plant, is also scheduled to complete the construction and start operation in 2017. With the three factories fully running, Hyundai Wia’s profitability is expected to improve as the rise in output would help lower production costs.

“Hyundai Wia’s earnings will likely bottom out in the third quarter when supply of finished cars typically decrease and gradually pick up in the fourth quarter,” said Kim Jin-soo from Korea Investment & Securities Co. “Expanding production at Mexico and Seosan first plants and the addition of Seosan second plant is expected to help improve performance of the company.”

Outlook for the company’s machine tool business also looks bright. The company in April released more than 20 new products including vertical machining center XF6300 and horizontal machining center XH6300 targeting the aerospace and medical industries that need sophisticated and advanced machines. The company, which has been making efforts to tap into the European market since 2013 when it set up a research and development center in Europe, aims to expand its presence in the European market by manufacturing customized and high-value-added machine tools.

By Park Yun-gu

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]