Korea Tire, Kumho Tire, Nexen Tire, etc. Expected Surprise Q2 Earnings
[Asia Economy Reporter Changhwan Lee] As the global automobile market, which had been sluggish due to COVID-19, shows a clear recovery this year, domestic tire companies are also continuing to post strong performances.
Following surprising results in the second quarter, tire prices are also expected to rise due to increased costs, leading to forecasts of a booming tire market in the second half of the year.
According to FnGuide on the 6th, Kumho Tire, the second-largest domestic tire company, is estimated to have recorded sales of 620 billion KRW in the second quarter, a 33% increase compared to the previous year. Operating profit is expected to have turned positive at 8.4 billion KRW.
Nexen Tire, the third-largest in the industry, is projected to have sales of 519.8 billion KRW in the second quarter, a sharp 65% increase year-on-year, and operating profit is also expected to turn positive at 23.3 billion KRW. These companies plan to disclose their second-quarter results in the latter half of next week.
Hankook Tire & Technology, the industry leader that announced its results first on the 4th, recorded second-quarter sales of 1.8063 trillion KRW and operating profit of 187.1 billion KRW. This represents an earnings surprise with increases of 32% and 167%, respectively, compared to the previous year.
The strong performance of tire companies this year, overcoming last year's slump, is thanks to the clear improvement in global automobile demand recently. When car sales increase, tire sales also rise. In the second quarter, demand recovery was evident in advanced markets such as Europe and the United States.
According to Michelin RE (replacement) tire data from June, sales in the European market increased by 26% year-on-year, and in the U.S. by 27%. Globally, sales rose by 20%. This is more positive for domestic tire companies, which have a larger share of RE tires compared to OE (original equipment) tires.
The sharp rise in used car prices also helped boost RE tire sales. In June, U.S. used car prices surged 10.5% month-on-month and 45.2% year-on-year, marking an all-time high boom in the U.S. used car market. Consumers usually replace tires after purchasing used cars.
Tire price increases also impacted performance. Hankook Tire and Kumho Tire raised prices on all products by up to 10% in March, and Nexen Tire also increased tire prices in April.
A Hankook Tire official explained, "Sales recovery continued in major regions such as Europe, North America, and China in the second quarter, and profitability improved through the expansion of sales proportions of electric vehicle and high-performance tires."
Performance improvement is expected to continue in the second half of the year. In addition to the ongoing improvement in the automobile market, further tire price increases are anticipated due to rising raw material costs. Hankook Tire is considering additional tire price hikes mainly in Europe and North America.
The significant increase in sales of eco-friendly vehicles such as electric and hybrid cars also contributes to performance improvement. Electric vehicles are heavier than internal combustion engine vehicles, making tire performance more important, and tires for electric vehicles are more expensive than regular tires.
Jung Yongjin, senior researcher at Shinhan Financial Investment, stated, "With improved automobile consumer sentiment, tire sales are expected to remain solid in the second half of the year," adding, "Following RE tires, demand improvement for OE tires will continue, sustaining the tire boom for the foreseeable future."
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