[Click eStock] "Hankook Tire Acquires Hanon Systems... Uncertainty Resolved and Earnings Expectations"

Injection of 1.8 Trillion to Become Largest Shareholder of Hanon Systems
Need to Confirm Shareholder Return Policy and Management Roadmap
Concerns Over Synergy Uncertainty Also Exist

Hankook Tire approved the acquisition of Hanon Systems shares held by Hahn & Company Auto Holdings and participation in a third-party allotment capital increase at its board meeting on the 30th of last month. With this, Hankook Tire plans to invest 1.8 trillion KRW to increase its stake in Hanon Systems from the existing 19.5% to 54.8%, thereby acquiring the status of the largest shareholder. Hanon Systems will raise 600 billion KRW through the capital increase, which will be used for debt repayment (200 billion KRW) and operating funds (400 billion KRW). This acquisition was completed about four months after signing a memorandum of understanding (MOU) with Hahn & Company in May.

On the 2nd, Kim Gwi-yeon, a researcher at Daishin Securities, said, "With Hankook Tire's approval of this acquisition, the uncertainties related to the acquisition of Hanon Systems have been primarily resolved," adding, "As the acquisition process concludes, if Hankook Tire changes its shareholder return policy, there is a possibility of valuation rerating and increased expectations for the normalization of Hanon Systems' performance." He also maintained a 'Buy' rating on Hankook Tire and kept the target price at 59,000 KRW. Hankook Tire's closing price on the previous trading day was 41,450 KRW. On the other hand, the target price for Hanon Systems was lowered from 4,900 KRW to 4,000 KRW.

Hankook Tire's third-quarter sales are expected to be 2.3 trillion KRW, with operating profit projected to increase by 4% to 410.5 billion KRW. The volume effect centered on domestic and European RE markets continues, and considering the stabilization of logistics costs and the timing of raw material price lagging, cost concerns are expected to be limited. Once winter tire demand fully kicks in after October, there is also expected to be greater room for price increases.

Hanon Systems' third-quarter sales are expected to increase by 3% to 2.4 trillion KRW, with operating profit projected to rise by 231% to 67.2 billion KRW. Although a reduction in volume effects compared to the previous quarter is inevitable due to the electric vehicle chasm and seasonal off-season impact, margin improvement is expected to continue due to the effects of profitability improvement strategies. It is analyzed that repaying 200 billion KRW of debt through the capital increase will result in cost savings of over 10 billion KRW annually.

Researcher Kim said, "The stock prices of Hankook Tire and Hanon Systems fell by 21% and 34%, respectively, experiencing a significant decline compared to the KOSPI (-4.8%) and the automobile sector (-6.7%)," adding, "Much of the acquisition uncertainty has been reflected, and there is potential for a short-term rebound, but Hankook Tire's third-quarter earnings momentum remains valid." However, he noted, "For a sustained upward trend, the completion of accounting treatment related to the share acquisition and capital increase, along with confirmation of Hankook Tire's shareholder return plan and Hanon Systems' management roadmap, will be necessary." Considering the damage to investment sentiment due to the large cash outlay and uncertainties regarding synergies between the two companies, he analyzed that visibility of profitability improvement based on shareholder-friendly policies and management roadmaps is required.