Tire Stocks Unable to Keep Up

[Asia Economy Reporter Koh Hyung-kwang] The stock prices of the three leading Korean tire companies?Hankook Tire & Technology (Hankook Tire), Kumho Tire, and Nexen Tire?are struggling. Since the beginning of the year, their earnings have plummeted due to the spread of the novel coronavirus infection (COVID-19), and with the U.S. federal government considering imposing additional anti-dumping tariffs in the second half of the year, they have yet to find a turning point for recovery.

According to the Korea Exchange on the 5th, Nexen Tire closed at 5,200 won in the KOSPI market the previous day. This is an 18.2% drop compared to the stock price two months ago (6,360 won) and a 43.0% decrease compared to the end of last year (9,130 won). The main reason for the weak stock price is poor earnings. Nexen Tire's operating profit in the first quarter was 25.3 billion won, down 47.6% year-on-year, and the industry expects that the second quarter's profit decreased by more than 80-90% or, in the worst case, turned into a loss. This is largely due to a sharp decline in overseas exports, which account for more than 60% of sales. Securities firms are continuously adjusting their target prices, with Korea Investment & Securities lowering Nexen Tire's target price by 20% from 9,500 won to 7,600 won.

Kumho Tire's stock price situation is even more severe. The stock price, which maintained the 4,000 won range at the end of last year, recently fell to the 2,000 won range. Kumho Tire's second-quarter operating loss, to be announced this month, is expected to reach the 50 billion won level, significantly exceeding the first quarter's loss of 18.4 billion won. In addition to deteriorating earnings, conflicts with the labor union have escalated to the extreme, with the company's operating funds being subject to provisional seizure. The irregular workers' union filed for bond seizure and collection against the company in court, resulting in the suspension of allowance payments to all employees and delayed payments to partner companies. This has been described as the biggest crisis since the company's founding.

Compared to its competitors, Hankook Tire's stock price is relatively better. As of the previous day's closing price, it stood at 27,350 won, down 18.4% from 33,550 won at the end of last year. The second-quarter operating profit was 70.1 billion won, down 33.6% year-on-year. Thanks to competitiveness in premium products, the company continues to operate in the black, but it has not escaped the impact of COVID-19. This is due to the decline in tire demand in domestic and overseas markets. Recently, tensions surrounding management rights have been rising, making the stock price unpredictable.

The outlook for the three tire companies in the second half of the year is also challenging. While demand recovery is expected as COVID-19 stabilizes, all three face the risk of U.S. anti-dumping investigations on foreign tires. The United Steelworkers (USW), the largest labor union in the U.S., filed a complaint with the U.S. Department of Commerce in May, alleging that Korea and others are dumping passenger car and light truck tires and requesting the imposition of anti-dumping tariffs. A securities industry official said, "With the U.S. federal government planning to review the imposition of additional anti-dumping tariffs by November, it is difficult to predict a rebound in the stock prices of the three tire companies."

This content was produced with the assistance of AI translation services.