Hyundai Glovis improves, but problems persist

Seoul-based Hyundai Glovis has faced a couple of very difficult years, partly because of challenging conditions for logistics companies worldwide, with its share price having almost halved since a record high in September 2014. Its stock is now trading around the levels it recorded in the summer of 2011, despite a financial performance that has become more reassuring in recent times.

Shareholders unrest, a tangled corporate structure, and possible corporate activity orchestrated by the Chung family – which also controls parent company Hyundai Motor – weigh on its valuation.

Earlier this year the rumour mill had it that Hyundai Motor would consolidate its logistics arm, resulting in deeper vertical integration of its supply chain – in this context, it’s worth mentioning that vertical integration of the supply chain failed miserably at France’s Peugeot soon after the credit crunch hit, and ended up with massive dilution for the Peugeot family.

Meanwhile, Glovis was also rumoured to be a possible suitor for Hyundai Merchant Marine, which recently had to undertake a comprehensive corporate restructuring to stay afloat, and is losing customers due to its stricken finances. Moreover, press reports recently suggested that Glovis plans to expand its dry bulk and tanker trade businesses, diversifying from Hyundai Motor’s core business.

While this kind of speculation is likely to persist in South Korea, its operating performance could have been worse in the first quarter when it reported revenues of KRW3.76tr, up 11% year-on-year and up 1.1% quarter-on-quarter.

Gross profit rose only 4.9% against one year earlier, and 0.8% quarter-on-quarter, but operating margins were stable at 5.1%, with operating profit coming in at KRW192.5bn, up 10.3% year-on-year and up 3.3% quarter-on-quarter. Similarly, EBITDA rose, reaching KRW230bn, up 13.5% year-on-year.

Earnings before taxed surged, boosting net earnings, up 48.7% to KRW179m in the first quarter due to the contribution of non-operating income, or “other” income.

Other costs and freight costs are falling, although salaries are rising. Total assets and liabilities are on their way up, while gross cash and cash equivalents fell 9.2% to KRW614bn on the back of rising receivable and payables.

The international logistics business, which was responsible for almost 41% of group revenues in the period, turned over KRW1.53tr, down from KRW1.59tr in the previous quarter, but up from KRW1.44tr one year earlier. Low oil prices had an impact on performance, with bulk direct carriage sales rising, and petrochemical and chemical export volumes falling.

CKD, its second-largest unit, saw volumes increase, with sales of KRW1.5tr, up 19.2% year-on-year, representing 40% of group revenues. It benefited from favourable currency changes, among other things. The CKD cargo distribution business spans purchasing, packaging and delivery services of automobile parts for car manufacturing plants overseas, while its CKD product distribution offers integrated services.

Its smaller divisions – domestic logistics, used car auction and other distribution – had mixed fortunes, although they held up relatively well given the current environment.

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Source: Transport Intelligence, July 06, 2016

Author: Alessandro Pasetti