[Click eStock] "Hankook Tire & Technology, Ability to Pass on Price"

Korea Investment & Securities Report

[Asia Economy Reporter Minji Lee] Korea Investment & Securities maintained a buy rating on Hankook Tire & Technology on the 5th and kept the target price at 74,000 KRW. This is because the performance improvement is expected to accelerate further from the second half of the year, supported by price increases.

In the second quarter, Hankook Tire & Technology recorded an operating profit of 187.2 billion KRW, exceeding market expectations by 6%. Strong sales and mix improvement had a positive impact. Jinwoo Kim, a researcher at Korea Investment & Securities, said, “Sales volume increased by 25% compared to the same period last year, and both original equipment (OE) and replacement (RE) showed growth,” adding, “The proportion of tires 18 inches or larger is 38%, and mix improvement focused on larger sizes is continuing.”

Looking at sales by region, domestic sales fell by 1.6%, while China, Europe, and North America increased by 2.4%, 44.8%, and 58.4%, respectively. The input cost in the second quarter was $1,741, up 6.5% from the previous quarter, and it is expected to reach $1,795 in the third quarter, a 3.1% increase from the second quarter. Researcher Kim said, “Production disruptions due to container shortages reached 600,000 to 800,000 units,” but added, “However, production adjustments were made to respond, and sales volume was not affected.”

Winter tires for the third quarter are expected to record at least the usual level or higher. In Europe, distribution inventory is somewhat reduced, and weather conditions will be a key factor.

The fact that rising raw material costs are being sufficiently passed on to selling prices is expected to lead to improved profitability. In advanced markets such as Europe and North America, price increases of 3-5% are expected from July through this month, with additional increases to be decided based on market trends.

Researcher Kim Jinwoo forecasted, “Price increases of about 4-5% were already implemented in the first half of the year, and if the plan proceeds as expected, it can offset the cost burdens from rising raw material and logistics costs,” adding, “Supported by price increases and seasonal effects, performance improvement is expected to accelerate further from the second half of the year, and differentiation from competitors through electric tires is also positive.”