Kia Motors stocks plunge on weak earnings

By Kim You Jin

SEOUL, Jan. 27 (Yonhap) -- Share prices of Kia Motors Corp., South Korea's No. 2 carmaker, plunged to their lowest level in a year Tuesday, following last week's announcement that its profitability worsened in 2014 due to unfavorable business conditions overseas.

Kia's stocks closed at 45,400 won (US$42.04) on the main Seoul bourse, down 2.26 percent from the previous day. Prices dipped to a 52-week low of 44,750 won mid-session, the second time to do so since Monday. The benchmark KOSPI ended 0.86 percent higher on Tuesday.

The smaller affiliate under the world's fifth-largest automaker Hyundai Motor Group said Friday its net profit fell 21.6 percent on-year in 2014. Net income for the fourth quarter alone more than halved, down 54 percent compared to a year earlier.

The automaker has been trading bearish for the past five consecutive sessions, even before the earnings report, as market watchers presented gloomy fourth-quarter estimates.

Although prices managed to limit losses to below 2 percent when the market closed last week, they nosedived on Monday, sinking 5.69 percent to close at 46,450 won once the estimates were confirmed.

"(Kia's) fourth-quarter performance fell far below market expectations due to slowing sales in the company's Russia branch and increased buying incentives in the United States (in an attempt to sell older models)," said Song Sun-jae, an analyst from Hana Daetoo Securities Co.

"The adverse effect by the sudden weakening of the Russian ruble on the company's profits is unavoidable," he said. Kia's car sales in Russia account for about 6 percent of overall global sales.

The ruble continued its downtrend against the U.S. dollar, even falling to its weakest level ever after Standard & Poor's cut Russia's credit rating to junk.

The depreciation of the Japanese yen, on the other hand, has given carmakers in the neighboring country a competitive edge in overseas markets, further dragging down profits for the South Korean carmaker, according to industry watchers.

"(For the first quarter this year), Kia will likely see only a limited improvement in its profits," said Chae Hee-guen, an analyst at Hyundai Securities Co. "Although the company will see a boost from its lineup of new cars to be released this year, business conditions in the global market, such as currency rates and overseas competition, are not likely to be very favorable."

Likewise, most market watchers here have revised down their target prices for the carmaker. The average target price set out by local analysts came to 62,875 won for the first quarter of this year, down from the previous 63,720 won forecast for the October-December period, according 16 local brokerage houses surveyed by Yonhap Infomax, the financial news arm of Yonhap News Agency.

However, a majority of those surveyed maintained their buying recommendations for Kia, citing its efforts to minimize damage.

"Kia has said it will reduce shipments to Slovakia and Russia as its first step to ease the risks of the weakening ruble, and to even cut down production in the company's Russian plants should the currency risk become exacerbated," said analyst Choi Won-kyung from Kiwoom Securities Co.

"The fact that Kia has set its goal to increase production by 3.6 percent, higher than that of its larger affiliate Hyundai Motor Co., along with the introduction of its new models this year, including its mainstay sport utility vehicles, will give share prices a push upwards."

yjkim8826@yna.co.kr
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