[Click eStock] "Nexen Tire, Stable Profitability... Target Price Maintained"

On the 29th, IBK Investment & Securities maintained its buy rating and target price of 11,000 KRW for Nexen Tire, stating that "favorable profitability is expected due to the stabilization of lower transportation costs."

On the same day, Lee Sang-hyun, a researcher at IBK Investment & Securities, said, "Nexen Tire's operating profit for the third quarter of this year reached 69.7 billion KRW, an increase of about 6200% compared to the same period last year, with an operating margin of 10.1%. This performance exceeded market expectations." He added, "Through the expansion of all-weather products and stable price maintenance, the company achieved sales at the level of the previous quarter, and recovered pre-COVID-19 profitability due to the easing of raw material and transportation cost burdens." In particular, transportation costs accounted for 8.5% of sales, improving by 7.0 percentage points from 15.5% in the same period last year.

Similar operating results are expected in the fourth quarter. The researcher noted, "Sales have stagnated since the second half of the year. While new car (OE) sales have continued to increase due to the expansion of new supply models, replacement (RE) sales have been slow to recover due to economic slowdown and inventory adjustments by some clients." Nevertheless, he said, "Profitability is expected to achieve a margin similar to the third quarter as the burden of raw material and transportation costs continues to ease in the second half. As a result, annual sales are expected to slightly miss market forecasts, while profitability will meet expectations."

Profit contribution is expected to increase with the expansion of the European plant. Nexen Tire plans to expand its production infrastructure from 45 million units this year to 52 million units by 2025 through the second phase of equipment expansion and productivity improvement at its European plant. The European plant's capacity will increase from 5.5 million units this year to 9.2 million units next year and 11 million units in 2025, which is expected to enhance the profit contribution from the European plant. The researcher added, "The establishment of a new plant in the United States, pursued as a mid- to long-term project, is currently in the process of narrowing down site selection."