[Click eStock] "Kumho Tire, Ongoing Profit Structure Improvement Amid Transportation Cost Burden"

Operating Loss Turned Negative in Q3 This Year Compared to Same Period Last Year
IBK Investment "Kumho Tire Target Price Lowered from 5,000 KRW to 4,200 KRW"

[Asia Economy Reporter Gong Byung-sun] Kumho Tire posted third-quarter results this year that fell short of market consensus due to transportation cost burdens. Kumho Tire is pursuing improvements in its profit structure and financial cost reductions through factory relocation to cut expenses.

According to IBK Investment & Securities on the 29th, Kumho Tire's third-quarter sales this year increased by 9% year-on-year to 648.7 billion KRW, while operating loss turned to a deficit of 5.5 billion KRW during the same period. Sales were 1.68% below consensus.

Transportation costs are interpreted to have negatively impacted the results. Although sales increased due to higher sales volume and average selling price (ASP), profitability declined and transportation costs also rose. In the third quarter, freight and shipping expenses amounted to 103.3 billion KRW, a 161% increase compared to the same period last year. This also accounted for about 15.9% of sales.

Kumho Tire is promoting profit structure improvements and factory relocation. Since the major shareholder changed from creditors to Singway Korea through a third-party allotment capital increase on July 6, 2018, the company has been pursuing cost and structural improvements. Additionally, to reduce financial costs, it is attempting to sell and relocate the Gwangju factory site.

Lee Sang-hyun, a researcher at IBK Investment & Securities, explained, “There are parts that have not been agreed upon with local governments, such as changes in land use, so it will take more time, but if progress is made, financial cost reductions through debt repayment are expected.”

Accordingly, IBK Investment & Securities maintained a ‘Neutral’ investment opinion on Kumho Tire. The target price was lowered from 5,000 KRW to 4,200 KRW. The closing price on the 26th was 4,115 KRW. The researcher said, “If operating profit improves and financial costs are reduced, establishing a profitable structure, a revaluation of the company’s valuation will be possible.”