[Click eStock] "Nexen Tire, Recovery of Upstream Industry Needed for Stock Price Increase"

[Asia Economy Reporter Eunmo Koo] KB Securities analyzed that although the excessive decline in Nexen Tire's stock price has been largely resolved, a rapid recovery in the upstream industry is necessary for the stock price to rise. The investment rating was downgraded to ‘Neutral,’ while the target price was maintained at 6,500 KRW.

On the 21st, KB Securities projected Nexen Tire's operating profit for this year at 100.8 billion KRW, a 51.4% decrease compared to last year. This figure is 22.3% below the market consensus. Seongjin Kang, a researcher at KB Securities, explained in the report that day, “The reason for not making significant changes to the operating profit forecast is that despite the reduced tire sales outlook due to the sluggish upstream industry, the decline in raw material prices is expected to have a positive effect.”

Despite the sluggish market conditions, the decline in raw material prices means that the adjustment factor for this year’s operating profit forecast is not significant. Researcher Kang stated, “Although the average selling price (ASP) forecast and tire sales volume forecast for this year were lowered, considering the reduction in raw material costs per unit due to the price drops in natural rubber and butadiene, as well as the adjustment of fixed cost estimates related to the Czech plant confirmed since the fourth quarter of last year, the factors affecting the operating profit forecast change are judged to be not significant compared to before.”

While the excessive decline in Nexen Tire’s stock price has been largely resolved, it was pointed out that a faster-than-expected recovery in the upstream industry is necessary for the stock price to rise. KB Securities expects Nexen Tire’s operating profit next year to improve by 52.0% year-on-year to 153.2 billion KRW, but this still falls short of last year’s operating profit of 207.4 billion KRW. Researcher Kang analyzed, “Despite the recovery in tire sales volume, the fixed cost issue at the Czech plant will remain a burden,” adding, “For Nexen Tire’s stock price to rise, there needs to be a signal that automobile sales in major regions such as Europe recover faster than expected, thereby quickly eliminating the fixed cost burden associated with the Czech plant’s operation.”

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