Weak yen puts POSCO, Hyundai out on limb

2013-04-26 17:01

Weak yen puts POSCO, Hyundai out on limb


Korean automobile, steel and electronics manufacturers are singing the blues due to falling margins from exports, caused by the yen’s weakness, while Japanese rivals are seeing an uptick in global sales

By Na Jeong-ju

South Korean firms are suffering heavy setbacks in global markets due to the weakening yen, while their Japanese rivals are rebounding strongly on their price competitiveness. Hardest hit are Korean automobile, steel and electronics manufacturers that compete neck-and-neck with Japanese firms in major markets around the world. The yen’s weakness has cut the earnings of Korean exporters. Hyundai Motor, the country’s largest automaker, said its first-quarter net profit dropped 14.9 percent from a year to 2.08 trillion won ($1.8 billion), compared with 2.4 trillion won a year earlier. In the January-March period, sales rose 6 percent on-year to 21.3 trillion won, but operating profit dropped 10.7 percent to 1.8 trillion won. “We earlier predicted the yen-dollar rate would move between 86 to 87 yen in the first quarter, but the average rate was 94 yen. That negatively affected our profitability,” an executive of Hyundai Motor said. Hyundai Motor, which competes with Toyota, Honda and other Japanese carmakers, could lose its competitive edge for some time as the yen’s weakness is expected to continue for the time being. Kia Motors, the second-largest automaker affiliated with Hyundai Motor, also announced its first-quarter net profit fell 34.7 percent from a year earlier to 783.9 billion won during the same period. Its operating profit dropped 35.1 percent to 704.2 billion won, as sales fell 6 percent to 11.08 trillion won. POSCO, the country’s leading steelmaker, also suffered damage. Its first-quarter net profit sank 54 percent from a year earlier to 292 billion won. Sales dipped 10.6 percent on-year to 14.58 trillion won, and operating income also dropped 4.7 percent to 717 billion won. The poor performances by Korean exporters are in stark contrast to a strong recovery of Japanese firms.Sony said Thursday it has doubled its net profit estimate for the 2013 financial year that ends on March 31 to 40 billion yen from an earlier prediction of 20 billion yen, thanks to the weaker yen and the revival of its life insurance business in Japan. Sony also increased its estimated operating profit to 230 billion yen from 130 billion yen and for sales to 6.8 trillion yen from 6.6 trillion yen.

Canon, the leading camera-and-printer maker in Japan, also raised its full-year operating profit forecast by nearly 10 percent to 450 billion yen on Wednesday as a weaker yen bolstered the company’s outlook.

Japan’s benchmark Nikkei has rallied nearly 60 percent since mid-November since Prime Minister Shinjo Abe promised expansionary monetary and fiscal policies. During the same period, the yen has weakened almost 24 percent against the dollar.

However, Korean exporters are watching their earnings and stock price slide as Japan’s weak-yen policy has made the Korean won more volatile. The won recently soared above 1,140 won against the dollar, compared to 1,070 won at the end of last year. The won also appreciated 4.7 percent against the yen in the first quarter.

The benchmark KOSPI closed at 1,944.56 on Friday, compared with 1,997.05 at the end of last year.

Bank of Korea Governor Kim Choong-soo has cautioned the yen’s slide may hurt the competitiveness of Korean firms further and weigh heavily on the economy down the road.

“We are beginning to feel the negative impact of the yen’s weakness on Korea’s exports,” Kim said during a meeting with bank CEOs, Friday. “What matters is how we should respond to the trend. We must draw up comprehensive countermeasures.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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