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Hyundai shares Slump on Quarterly Profit Outlook

By Rose Kim

Hyundai, South Korea’s largest automaker, slumped to the lowest in more than three years on concerns that its third-quarter profit may miss analyst estimates and the company may increase spending.

Hyundai fell 3.3 percent to 161,500 won at the close in Seoul, the lowest since August 2011, after earlier tumbling as much as 5.7 percent. The benchmark Kospi index rose 1.1 percent.

Seoul-based Hyundai may tomorrow report third-quarter profit that trails analyst estimates after strikes in South Korea and the stronger won increased costs, Nam Kyeong Moon, an analyst at Yuanta Securities Korea Co. said by phone today. While the won did weaken toward the end of the quarter, that may have increased the book value of Hyundai’s foreign exchange reserves and provisions, further reducing profit, he said.

“Based on new calculations, we expect operating profit to be as much as 200 billion won lower than the consensus,” said Nam, who has a buy recommendation on the stock and a 290,000 won price target.

The company’s third-quarter operating profit, or sales minus the costs of goods sold and administrative expenses, may be 1.81 trillion won ($1.72 billion), according to the average estimate of 30 analysts surveyed by Bloomberg.

Partial strikes over wage terms that began Aug. 22 in South Korea probably cost the company 40,000 vehicles of output, equivalent to 900 billion won, Nam said. Hyundai produced almost 40 percent of its vehicles in South Korea during the first six months of the year, company data show.

Separately, the Korea Exchange today asked Hyundai to clarify a media report that it may buy back General Electric’s stakes in affiliates Hyundai Capital Services Inc. and Hyundai Card Co. Hyundai hired JPMorgan as it considers buying the stakes, which may be worth as much as 2 trillion won, MoneyToday reported earlier. Both Hyundai Card and Hyundai Capital provide financing for buyers of Hyundai vehicles.

The market is “wary of potential cash expenditure” by Hyundai  even though buying back the stakes will help improve the company’s earnings in the future, said Shin Chung Kwan, an analyst at KB Investment & Securities Co.