[Click eStock] "Nexen Tire, Q1 Recovery Continues... Target Price Raised"

Korea Investment & Securities Report

Korea Investment & Securities forecasted that Nexen Tire will experience a period of profit normalization this year amid rising profitability. Accordingly, they maintained a 'Buy' investment rating and raised the target price by 20%, from 10,000 KRW to 12,000 KRW.

On the 11th, Jinwoo Kim, a researcher at Korea Investment & Securities, stated, "Nexen Tire's first-quarter performance is expected to continue its recovery trend," adding, "Sales are projected to increase by 24% year-on-year to 659 billion KRW, and operating profit is expected to reach 23.2 billion KRW, maintaining the profit normalization momentum."

Researcher Kim explained, "Although volume is expected to slightly decrease compared to the previous quarter due to seasonality, it is anticipated to increase compared to the same period last year," and added, "While price increases have not yet been implemented this year, the price hikes made in the first half of 2022 have been fully reflected in the second half, resulting in a year-on-year increase. Meanwhile, raw material costs such as rubber prices continue to decline moderately."

He emphasized, "As freight rates peaked and then declined, logistics costs as a percentage of sales have steadily decreased each quarter since reaching a high of 21.5% in the first quarter of 2022," explaining, "This is because logistics cost contracts for Europe were renewed starting September 2022, and contracts for the U.S. were renewed from November 2022, normalizing logistics unit costs."

It is analyzed that logistics costs as a percentage of sales will fall below 10% in the second half of this year. As logistics costs decrease each quarter, operating profit margins are also expected to rise quarterly.

Researcher Kim stated, "With profit normalization coming into view, the 12-month forward earnings per share (EPS) has also entered an upward phase," and emphasized, "In 2023, we plan to increase the proportion of spot price linkage for ocean freight to more actively reflect the declining freight costs in expenses."

He further analyzed, "Supported by this, profitability is expected to improve each quarter in 2023, contributing to profit normalization," and noted, "The series of additional price increases by leading companies starting from December 2022 indicates robust tire demand."

He also added, "Although Nexen Tire has not yet joined the price increase trend, the possibility of a price hike in the second quarter remains open," and said, "In the mid to long term, growth is expected to continue through the expansion of overseas factories, including the U.S. following the Czech Republic."

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