**Seoul**: SK Securities reports positive first-quarter sales forecasts for Kia, driven by strong U.S. demand, while cautioning about second-quarter tariff impacts that may reduce operating profits. Long-term adjustments, including increased production in Mexico, are anticipated to mitigate tariff effects.
SK Securities has issued a report that outlines both optimistic projections and significant concerns regarding Kia’s financial performance in the upcoming quarters. On the 8th, the firm noted that Kia is predicted to achieve notable results in sales during the first quarter of this year, driven primarily by strong demand in the U.S. market. However, challenges are expected to arise in the second quarter stemming from the introduction of tariffs, which has prompted SK Securities to adjust its projections.
Researcher Yoon Hyuk-jin highlighted that Kia’s first-quarter sales are anticipated to reach 28.9 trillion won, marking a 10.3% increase compared to the same quarter last year. Operating profit for this period is expected to be at 3.4 trillion won, which reflects a slight decline of 0.2%. This forecast surpasses initial market consensus predictions that estimated sales at 27.6 trillion won and operating profit at 3.2 trillion won.
Yoon provided insight into the factors contributing to this anticipated sales growth, attributing it to increased global sales volumes and a favourable shift in exchange rates. Despite a backdrop of weak demand and a rise in sales incentives, Yoon stated, “Sales will rise due to increased global sales volume and rising exchange rates,” further noting, “especially, the strong North American demand before the tariffs may lead to operating profit exceeding expectations.”
While the first quarter appears promising, Yoon outlined a more cautious outlook for the second quarter, primarily due to the anticipated impact of a new 25% tariff. The operating profit forecast has been reduced from 3.7 trillion won to 2.8 trillion won for this period. He remarked that should the sales volumes remain on par with last year’s figures without raising prices in the U.S., the company could face an approximate operating profit reduction of 2.9 trillion won over the fiscal year.
Yoon recognised that in the short term, Kia may be able to alleviate some of the tariff impacts through non-price factors, such as reduced incentives and benefits. However, he cautioned that price increases for vehicles produced in the U.S. are anticipated in the long run as production adjustments are made to offset tariff costs. He stated, “We will increase production at the Mexican plant over the long term to respond to the duty-free benefits by meeting the United States-Mexico-Canada Agreement (USMCA).”
Looking ahead, SK Securities projects that Kia’s overall sales for the year will increase by 12% reaching 120.3 trillion won, while operating profit is expected to decline by 9.2% to 11.5 trillion won due to rising tariff-related expenses. Yoon concluded, “The price-to-earnings ratio (PER) valuation of 4 times and favorable shareholder return policies, like stock buybacks, will support the lower end, and it is clear that cost-reduction factors will arise, including tariff negotiations.”
Source: Noah Wire Services
Subscribe to Industry Updates
