Asian carmakers’ results seen up; sales outlook eyed

By Kim Yeon-hee and Chang-Ran Kim

SEOUL/TOKYO (BestGrowthStock) – Quarterly earnings at Asian carmakers are set for a big improvement thanks to recovering demand and cost cuts, and analysts are turning their focus to how fast they can get back to sustained, pre-crisis growth.

After the industry’s worst downturn in three decades last year, the January-March quarter saw sales rise around the world even in the mature Japanese and European markets, where consumers took advantage of government incentives aimed at reviving demand.

As a result, operating profits at Japan’s Honda Motor Co (7267.T: ) and Nissan Motor Co (7201.T: ) are seen swinging back into the black in their final, January-March quarter, according to consensus estimates from Thomson Reuters I/B/E/S.

Toyota Motor Co (7203.T: ) is a notable exception to the improved outlook. After posting profits in the previous two quarters, the world’s largest automaker is expected to revert to an operating loss in the March quarter, which included the worst recall crisis in its history. Still, the loss is expected to be less than a third of last year’s, when the global crisis was raging.

South Korean rival Hyundai Motor Co (005380.KS: ), meanwhile, is set to continue its charge with a near quadrupling of its first-quarter profit (Read more your timing to make a profit.)s, thanks to its big presence in the fast-growing Chinese and Indian markets, as well as its aggressive push into the United States.

China’s biggest automaker, SAIC Motor Corp (600104.SS: ), is set to post a more than quadrupling in first quarter profit (Read more your timing to make a profit.), benefiting from Beijing’s policy incentives.

Analysts are upbeat about SAIC’s outlook for the rest of the year on robust automobile demand especially in second- and third-tier cities.


JPMorgan Securities auto analyst Kohei Takahashi said the key in the 2010/11 business year for Japanese automakers will be how much they can increase global sales volume. Those companies with a high exposure to emerging markets will be at an advantage as government subsidies to replace clunkers begin to run out in some countries, he said.

“The past two years have been abnormal,” Takahashi said, noting that slashing overtime work and R&D spending had done a lot to shore up the bottom line in the year ended in March.

“The focus this year will be on how the companies expect to rebuild a sustainable track to profitability without such measures.”

Automakers are also seen facing pressure from higher input costs as steelmakers seek to pass on at least part of the rise in raw material prices.


In the year ahead, analysts expect Hyundai, with affiliate Kia Motors (000270.KS: ) the world’s fifth-largest carmaker by sales last year, to keep its momentum as it seeks to close the gap with larger rivals such as Toyota.

“We believe more new model launches will continue to fuel sales momentum and an improving sales mix and the high-margin, platform-sharing models will continue to push up (Hyundai’s) profitability,” Simon Park, an analyst at RBS, said in a report.

After launching the revamped Sonata sedan and Tucson sport utility vehicle in the United States, Hyundai is due to introduce the Accent and Azera models in the coming months.

RBS estimates Hyundai’s operating profit margin at 7.0 percent for this year, unchanged from last year, and Kia’s at 6.4 percent — well above those of Japanese rivals.

A near 3 percent gain in the South Korean won against the dollar by the end of the quarter puts some pressure on Hyundai’s price competitiveness, but analysts said the increase in overseas production and higher utilization of its factories were easing the blow.

Still, with sales growth strong in the United States and remaining brisk in China and India, analysts also expect big profit growth at Japan’s top three carmakers this year.

The biggest unknown will be at Toyota, which will be cleaning up after a quality crisis that had forced it to suspend production and sales of some models in the United States.

The world’s biggest automaker faces a string of lawsuits and other indirect costs in the aftermath of a recall of more than 8 million vehicles worldwide for problems linked to unintended acceleration. The ensuing damage to its brand image has forced Toyota to offer generous discounts to attract buyers in the United States, its single-biggest market.

But Citigroup auto analyst Noriyuki Matsushima saw the bright side, noting that consumers seemed keen to return to Toyota’s showrooms with the incentives. Toyota’s U.S. sales in March jumped 41 percent, outperforming a 24 percent rise in the market.

“Of course, profits are going to be thinner than what they would be making without the incentives, but right now what Toyota needs most is to restore sales and confidence,” Matsushima said.

Hyundai is set to announce its fourth-quarter results on Thursday and Kia plans to report on Friday.

Honda will announce its results and forecasts for 2010/11 on April 28, along with SAIC’s first quarter, with Toyota on May 11 and Nissan on May 12.

($1=92.43 Yen)

(Additional reporting by Yoshifumi Takemoto in TOKYO and Fang Yan in SHANGHAI; Editing by Lincoln Feast)

Asian carmakers’ results seen up; sales outlook eyed