[Click eStock] "Limited Impact of Fire on Hankook Tire's Stock Price"

Daishin Securities Report

Analysis suggests that the fire accident at Hankook Tire & Technology's Daejeon Plant 2 will not have a significant impact on the stock price. The investment opinion 'Buy' and the target price of 41,000 KRW were maintained.

On the 14th, Kim Gui-yeon, a researcher at Daishin Securities, stated, "This fire will inevitably cause inventory loss, production and sales disruptions, and loss of business opportunities," but added, "However, in the case of the Daejeon plant, some losses related to property, machinery, and downtime can be compensated through a comprehensive insurance policy worth 1.7 trillion KRW."

[Image source=Yonhap News]

According to the fire authorities, the fire that broke out around 10:09 AM on the 12th at Hankook Tire's Daejeon plant in Moksang-dong, Daedeok-gu, Daejeon, was only initially extinguished after more than 14 hours. The fire started in the curing process (the process of shaping tires using heat) equipment, and it is understood that Plant 2 was completely burned down along with 400,000 tires in the logistics warehouse.

The company announced through a public disclosure that it is insured under a comprehensive property insurance policy worth 1.7 trillion KRW. The Daejeon plant's production has been halted, and the company plans to investigate the cause and extent of the damage, carry out recovery efforts, and resume operations.

However, considering that Hankook Tire & Technology's operating profit forecast is around 848.5 billion KRW, a loss of 13 billion KRW from inventory damage is inevitable.

First, production and sales disruptions are expected based on Plant 2, which produces 16,000 tires daily, resulting in a sales loss of 1.2 billion KRW per day. The impact on business opportunities will vary depending on whether Plants 1 and 3 in Daejeon resume operations, the allocation of production to other regional plants, and insurance conditions. In the worst-case scenario, daily sales losses could reach up to 3.2 billion KRW.

Researcher Kim said, "Hankook Tire's stock price fell 5.99% the previous day, while Nexen Tire and Kumho Tire rose in trading on the 13th," and added, "If production disruptions are prolonged, there is a possibility of a reflective benefit on domestic sales of 400 billion KRW at the Daejeon plant."

He continued, "The stock price decline on the day is expected to be recoverable in the short term," and added, "Attention should be paid to the company's assessment of the fire impact and the timing of the plant's restart."