[Click eStock] "Hankook Tire, Profitability Improving... Red Flag on Slowing Demand for High-Profit Replacement Tires"

[Asia Economy Reporter Kwon Jae-hee] Shinhan Investment Corp. maintained its 'Buy' rating and target price of 43,000 KRW for Hankook Tire & Technology on the 3rd.

Hankook Tire & Technology's Q3 results showed sales of 2.3 trillion KRW and operating profit of 192.4 billion KRW, up 26% and 6% respectively compared to the same period last year. This met market expectations. The cumulative effect of price increases throughout the first half led to a significant rise in the average selling price (ASP). The 26% sales growth was contributed 20% by price increases. On the demand side, new car tires (OE), where supply disruptions have eased, improved across all regions, but replacement tires (RE) sales slightly declined due to weakened consumer sentiment.

Q4 sales are forecasted at 2.2 trillion KRW, with operating profit at 190.2 billion KRW, representing increases of 16% and 115% year-on-year, respectively. Demand is expected to see a continued trend of increasing OE share amid mixed OE and RE performance. Although intermittent strikes continue due to delayed labor-management negotiations, negatively impacting domestic production volume, the likelihood of large-scale production disruptions like those in 2021 appears low.

In the long term, the expansion of the North American Tennessee plant is proceeding as planned. Approximately 2.3 trillion KRW will be invested by 2026 to expand capacity to 12 million units annually. This will enhance additional growth drivers in the North American region, which accounted for 29% of sales as of Q3, and allow flexible responses to issues such as anti-dumping duties.

Jung Yong-jin, a researcher at Shinhan Investment Corp., analyzed, "The rise in raw material costs is calming faster than expected, and the reduction in logistics costs in the second half is continuously reflected. There are many points for profitability improvement on the cost side, but the slowdown in RE demand, which accounts for high profitability, limits expectations for margin improvement."

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