Earning Shocks: China’s THAAD Retaliation Leads to Earning Shocks in Korean Auto, Cosmetics Sectors | BusinessKorea

Wednesday, October 18, 2017

Automakers and cosmetics producers were directly hit in Q2 of this year by China’s retaliation over the deployment of the U.S. Terminal High Altitude Area Defense (THAAD) system in South Korea.
Automakers and cosmetics producers were directly hit in Q2 of this year by China’s retaliation over the deployment of the U.S. Terminal High Altitude Area Defense (THAAD) system in South Korea.
SEOUL,KOREA
27 July 2017 - 10:45am
Yoon Yung Sil

Automakers and cosmetics producers were directly hit in the second quarter by China’s retaliation over the deployment of the U.S. Terminal High Altitude Area Defense (THAAD) system in South Korea. Domestic automobile manufacturers and cosmetics companies, which have a high level of dependence on China, saw their operating profits drop up to 58 percent in the second quarter.

South Korea's top carmaker Hyundai Motor Co. announced on July 26 that its second-quarter operating profit amounted to 1.34 trillion won (US$1.2 billion), down 23.7 percent from a year earlier. The company’s second-quarter sales decreased 1.5 percent to 24.31 trillion won (US$21.7 billion) compared to the same period a year ago, while its net profit plunged 48.2 percent to 913.6 billion won (US$815.71 million). Its operating profit figure is 10.8 percent points lower than 12.9 percent of Mirae Asset Daewoo’s second-quarter forecast announced last month.

Hyundai Motor’s sales in the first half of the year grew 1.4 percent from the same period last year, while its operating profit and net profit dropped 16.4 percent and 34.3 percent, respectively. This is due to lower sales in China caused by the THAAD retaliation. The company’s global sales in the first half of the year declined 8.2 percent on-year to 2.2 million units but the figure, excluding China, increased 1.5 percent over the same period.

Kia Motors Corp., which is to announce its Q2 results on the 27th, is also expected to see its earnings fall rapidly. IBK Investment & Securities forecasted that the company’s second-quarter sales would stand at 14.05 trillion won (US$12.54 billion), down 2.7 percent from a year earlier, while its operating profit would decrease 30.1 percent to 538.9 billion won (US$481.16 million).

According to the China Association of Automobile Manufacturers (CAAM), Hyundai and Kia Motors had an 8.6 percent share in the Chinese market in 2012 but its market share plunged to 3.8 percent in the first half of this year.

Cosmetics manufacturers, which depend heavily on China, also failed to avoid the THAAD retaliation. AmorePacific Group announced that its consolidated operating profit in the second quarter plummeted 57.9 percent on-year to 130.38 billion won (US$116.41 million), while its sales dropped 17.8 percent to 1.41 trillion won (US$1.26 billion). Its net profit also showed a whopping 59.5 percent decrease to 99.96 billion won (US$89.25 million). Hyundai Motors Company Investment Securities forecasted in the middle of this month that second-quarter operating profit of AmorePacific Group would decline 33.6 percent, but the actual figure was 24 percent points lower than that.

LG Household & Health Care, Ltd. announced on the previous day that its second-quarter operating profit totaled 23.25 billion won (US$207.59 million), up 3.1 percent from the same period a year ago, while its sales decreased 1.5 percent to 1.53 trillion won (US$1.37 billion). The increase in operating profits was boosted by good performances of the beverage and consumer goods business divisions. The company’s cosmetics sales in the second quarter amounted to 781.2 billion won (US$697.5 million), down 4.7 percent from last year, while its operating profit from the sector also shrank 2.7 percent to 148.7 billion won (US$132.77 million).

As the Chinese government banned all group tours to South Korea in March as part of retaliation over the THAAD deployment, the decision has largely affected cosmetics and distribution industries in earnest. The number of Chinese visitors to South Korea between March and May this year was 841,952, down as much as 57.7 percent from 1.99 million at the same period last year.

As the China’s THAAD retaliation has continued, the cosmetics industry is targeting the U.S., Japan and Asian markets, diversifying its markets. With such efforts, cosmetics exports, which declined to US$350 million (336.01 billion won) during April and May after surpassing US$400 million (448 billion won) between February and March, rose to US$425.43 million (476.48 billion won) last month again.

 

 

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