Tire Stocks, Rolling Well These Days

Hankook Tire and Kumho Tire Hit New Highs This Month

[Asia Economy Reporter Song Hwajeong] Tire stocks have recently been on the rise, with consecutive record highs. The favorable business environment is expected to help stock prices continue their upward trend, supported by improved earnings.

As of 9:10 AM on the 11th, Hankook Tire & Technology was trading at 53,900 KRW, up 600 KRW (1.31%) from the previous day. This marks the second consecutive day of over 1% gains. On the 8th, Hankook Tire & Technology reached an intraday high of 55,300 KRW, setting a 52-week record. Kumho Tire also showed slight strength, rising 0.27% and maintaining gains for three consecutive days. Kumho Tire hit an intraday high of 7,820 KRW the previous day, also setting a new 52-week high. Since the beginning of this month through the previous day, Kumho Tire has risen 44%, Hankook Tire & Technology 9%, and Nexen Tire 6.46%, respectively.

The strong performance of tire stocks is due to an improving operating environment. At the end of last month, the U.S. Department of Commerce adjusted the anti-dumping tariff rates on imported tires, easing some of the burden. Hankook Tire’s rate was lowered from 38.07% to 27.05%, and Kumho Tire’s from 27.8% to 21.7%. Nexen Tire’s rate slightly increased from 14.24% to 14.72%. Jinwoo Kim, a researcher at Korea Investment & Securities, stated, "With the lowered tariff rates, the deposit paid at U.S. customs during clearance will also decrease, which will be finalized after the U.S. International Trade Commission (ITC) final ruling in early July. Due to this tariff reduction, Hankook Tire & Technology’s estimated annual tariff burden is expected to decrease by 29%, from 152.4 billion KRW to 108.2 billion KRW, making it the biggest beneficiary."

Next, mobility demand is recovering as COVID-19 restrictions ease. Eunyeong Lim, a researcher at Samsung Securities, explained, "With the easing of COVID-19, the U.S. is experiencing explosive growth in mobility demand such as outdoor activities and travel, leading to a boom in new cars, used cars, and rental cars. This mobility demand boom has already started not only in the U.S. but also in Europe and other emerging markets. Additionally, some consumers are meeting mobility needs through used cars and rental cars in preparation for the transition to electric vehicles, which will translate into tire replacement demand."

Improved business conditions are also expected to boost earnings. According to financial information provider FnGuide, the consensus forecast for Hankook Tire & Technology’s Q2 earnings projects a 26.74% year-on-year increase in sales to 1.7293 trillion KRW and a 135.95% rise in operating profit to 165.4 billion KRW. Kumho Tire is expected to achieve sales of 618.2 billion KRW, up 32.18%, and turn profitable with an operating profit of 14.7 billion KRW. Nexen Tire is also expected to return to profitability with an operating profit of 28 billion KRW and sales of 514.2 billion KRW, a 63.39% increase.