[Click eStock] "Nexen Tire, Transportation Costs Are the Main Cause of Profit Deterioration"

Raw Material Price Increases and Semiconductor Supply Disruptions Also Act as Negative Factors
Hyundai Motor Securities "Maintain Nexen Tire Target Price at 8,000 Won"

[Asia Economy Reporter Gong Byung-sun] Nexen Tire posted third-quarter earnings this year that fell short of market consensus due to transportation cost issues. Additionally, external shocks such as rising oil prices and supply chain instability have continued.

According to Hyundai Motor Securities on the 26th, Nexen Tire's third-quarter sales this year increased by 14.5% year-on-year to 534.9 billion KRW, while operating profit decreased by 89.7% over the same period to 1.3 billion KRW. The operating profit was 89.01% below consensus.

The rise in transportation costs acted as a negative factor. Transportation costs increased by 21.5 billion KRW compared to the same period last year, accounting for 16.3% of sales. Although price hikes were reflected, volume did not increase compared to the previous quarter, so the increased costs were not absorbed.

External conditions are also negative. Raw material prices continue to rise. The export ratio relative to sales, which is continuously increasing due to difficult space securing and freight price impacts, adversely affects profitability. However, it is expected to gradually ease from the first quarter of next year.

Semiconductor supply disruptions affected new car tire (OE) sales in most regions. The causes of the semiconductor supply issues include production site closures due to COVID-19 and sudden increases in demand. However, replacement tires (RE) are expected to show solid growth mainly in the US and Europe.

Jang Moon-soo, a researcher at Hyundai Motor Securities, explained, “Tire prices were raised twice this year and have been reflected in sales since the third quarter. The market reflection of additional price increases means that demand is solid and a supplier-driven market structure has formed, allowing cost increases to be fully passed on to customers.” However, he added, “Due to a profit structure sensitive to transportation costs, profit recovery will become clear after the second quarter of next year.”

Accordingly, Hyundai Motor Securities maintained its investment opinion on Nexen Tire as ‘Neutral’ (Market Perform) with a target price of 8,000 KRW. The closing price on the previous day was 7,140 KRW.