Tire manufacturers see decent progress in Q1

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Tire manufacturers see decent progress in Q1

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Korean tire manufacturers posted solid first-quarter performances, thanks to an increase in ultra high-performance (UHP) tires sales.

The combined revenue of Hankook Tire, Kumho Tire and Nexen Tire for the first quarter was 0.14 percent lower than the previous year, but their combined operating profit increased 4.7 percent year-on-year to reach 399.4 billion won ($390 million).

Although No. 1 company Hankook saw its operating profit decrease 0.7 percent year-on-year, Kumho and Nexen filled the void by posting a 19 percent and 12.8 percent year-on-year increase, respectively.

“The global tire industry is recovering steadily, but as it gets more competitive, companies are pressured by an increase in marketing costs and a retail price drop,” said Ryu Yeon-hwa, an analyst at IM Investment and Securities. “Revenue can be lower than expected, but with low and stable material costs, profitability should increase.”

Of the three, Nexen was “the surprise performer” in the first quarter as it was the only company to see a rise in both revenue and operating profit. Korea’s smallest tire manufacturer showed its best quarterly performance.

“Compared to the fourth quarter, the company was able to make improvements in products and retail price, increase the operation rate of its factories and reduce inventories and manufacturing costs,” said Chae Hee-keun, a researcher at Hyundai Securities. “Increasing supplies of original equipment tires and material cost reductions are likely to lead to a solid performance even after the second quarter, although the strong Korean currency could affect its profitability.”

Nexen said OE tire supply deals with global automakers in recent years have generated income. The nation’s smallest tiremaker inked a deal with Japan’s Mitsubishi in 2012 and also signed contracts with Fiat, Chrysler, Dodge, Volkswagen and Skoda last year. As a result, Nexen’s sales from OE tires to global automakers accounted for 18 percent of total sales, up 10 percentage points from a year earlier.

Its revenues from UHP tires increased 13.5 percent year-on-year to reach 176.7 billion won, accounting for 37.6 percent of total sales, up 2.2 percentage points from a year ago.

As for Kumho, analysts said that this year could be the beginning of its “turnaround.”

“Its revenue decreased 2.2 percent year-on-year to 859.1 billion won, which was 6.5 percent less than market consensus, but its operating profit was 4.4 percent better than market consensus,” said Kim Jin-woo, an analyst at Korea Investment and Securities, said. “Although it wasn’t a dramatic turnaround in the first quarter, Kumho Tire’s financial condition and sales recovery are still ongoing.”

Hankook was the only Korean tire company to see a decrease in both sales and operating profit in the first quarter, but industry observers said that the performance isn’t concerning as the company’s operating profit margin was still high at 15.5 percent.

“Hankook’s first-quarter performance met the market consensus,” said Shin Jung-kwan, an analyst at KB Investment and Securities. “Amid a retail price drop followed by a material price drop and the strong Korean currency, global production capacity increased 5.7 percent year-on-year to 23.25 million.”

BY joo kyung-don [kjoo@joongang.co.kr]



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