[Click eStock] "Nexen Tire, Positive Industry Cycle... Target Price Maintained"

Overall Positive Business Conditions, Favorable Facility Expansion
Key to Responding to Raw Material Price Increases in Second Half
External Procurement Needed for US Factory Expansion

Hi Investment & Securities analyzed on the 20th that the business cycle of Nexen Tire is positive. They maintained a target price of 11,000 KRW and a 'Buy' investment rating. Nexen Tire's closing price on the 19th was 8,810 KRW.

Researcher Cho Hee-seung of Hi Investment & Securities said, "There were concerns about rising freight costs due to the Red Sea issue and the spot price of raw materials, which started to increase from November 2023, but investors still maintain a positive view on the overall good business conditions and the arrival of the expansion cycle." He added, "It is somewhat regrettable that there is a lack of room to expand shareholder returns as investment in the US plant expansion is planned following the expansion of the Czech plant." He continued, "Considering the additional volume from the Czech plant expansion starting this year (targeting 55 million units by 2025), we judge that there are no depreciation factors."

Nexen Tire's operating profit margin for 2023 is 6.9%. The operating profit margin guidance for 2024 is 10%. Researcher Cho said, "Stable RE demand and the expanded P-C spread are expected to be reflected in the full year, so the increased profitability is expected to be maintained for the time being." He added, "Since issues regarding the possibility of rising raw material and freight costs remain, we do not see a situation where there would be pressure to lower prices." However, from the second half of the year, responding to raw material price increases through diversification of origins will be key. Regarding the Red Sea issue, he said, "Surcharge costs are expected to occur in the first quarter, but it is still a temporary issue."

The ramp-up of the Czech plant began in the first quarter of this year, and the volume is expected to increase significantly from the second half. Site selection for the establishment of a US plant, targeting operation in 2028-2029, is planned. Researcher Cho said, "Many investors were concerned about oversupply, but demand in the European region exceeds supply." He added, "The market share of RE tires in Europe was 6.5% in 2023, showing an upward trend for two consecutive years, so it is not a time to worry about oversupply."

Nexen Tire plans to build a system of 55 million units by 2025 and then expand to over 60 million units by 2030 through the US plant expansion. Researcher Cho said, "Since it is a large-volume sale, profitability is lower compared to general sales, but considering that the region focuses on high-inch tires, profitability is still higher than in other regions." However, since the investment is for the first expansion rather than the second, concerns about funding are high. The total investment amount related to the US plant expansion is expected to be 2 trillion KRW. Researcher Cho said, "External financing is likely to be needed from 2026," adding, "However, it is positive that production capacity is being expanded based on high demand, and it is a situation of rowing when the tide is in."