Korean tire stocks rally on improving business prospects

The shares of South Korea’s tire majors Hankook Tire & Technology, Kumho Tire, and Nexen Tire have rebounded strongly amid easing in raw material and logistics costs and brisk sales of premium tires in line with the EV and SUV boom.

Hankook Tire, Korea’s No.1 tire stock in market cap added 2.46 percent to Monday at 39,600 won ($29.02). Investors cheer the firm’s plan to expand its production base in Tennessee, U.S., which expected to help the Korean tire maker benefit from the U.S. Inflation Reduction Act offering tax benefits to locally produced clean energy products.

Since its board of directors approved the U.S. investment plan on Aug. 29, its shares surged 4.65 percent the next day and have since added 8.34 percent.

Kumho Tire and Nexen Tire also performed well on Monday. Kumho was up 8.56 percent to 3,740 won, with Nexen up 1.77 percent to 7,460 won. Compared with its intra-day lowest point in July, Nexen rose 44.8 percent on the day.

The tire trio suffered jump in production cost from surge in commodity price and logistics in the first half. Business conditions improved in the second half

According to their first half-term reports, Hankook achieved an operating profit of 301.3 billion won, down 19.3 percent from a year ago. Kumho’s operating income plunged 80 percent to 2.3 billion won over the same period, while Nexen recorded an operating loss of 66.2 billion won.

They mainly took a hit from the surge in the price of commodities, such as oil and natural rubber, and record-high container fares. Cost burdens eased on softening in oil prices that take up 60 percent of the total cost of tire manufacturing.

In addition, demand for SUVs have remained strong worldwide, which will lead to improvement in tire makers’ profitability as SUV tires are more expensive than full-size sedan tires. SUV sales worldwide increased to 40.5 percent in the entire global car shipments in July 2022 from 11.3 percent in 2010, according to automobile data portal MarkLines.

Hankook Tire shares rose 2.27 percent to 40,500 won in Tuesday’s morning session, with Kumho Tire up 2.67 percent to 3,840 won and Nexen Tire up 5.23 percent to 7,850 won.

[ⓒ Maeil Business Newspaper & mk.co.kr, All rights reserved]