[Market Focus] 'Fire' Drives Kumho Tire Down, While Hankook and Nexen Shares Rise

As of 9:20 a.m. on May 19, Kumho Tire shares were trading at 4,475 won, down 6.96% from the previous session's closing price. This appears to be due to the fire that broke out at the Gwangju plant on May 17.

In contrast, Hankook Tire & Technology, which is expected to benefit from the situation, was up 2.86% at 41,300 won, while Nexen Tire rose 3.07% to 6,040 won.

Previously, Kumho Tire's Gwangju Plant 2 was completely destroyed by fire on May 17. According to Daishin Securities, Kumho Tire's total annual production capacity (CAPA) is 65 million tires, of which 12 million are expected to be lost due to the fire. The annual production capacity of domestic competitors is 100 million tires for Hankook Tire & Technology and 52 million tires for Nexen Tire.

Daishin Securities expects Kumho Tire to experience an annual production disruption of about 9% due to this fire. Korea Investment & Securities estimated that, although the affected plant's planned annual output was 12 million tires, the actual sales disruption would amount to about 7 million tires. Korea Investment & Securities also lowered its operating profit estimate for Kumho Tire to 387 billion won for this year and 553 billion won for next year, down 36% and 16%, respectively, from previous estimates. The target share price was also cut from 7,000 won to 6,000 won.

Regarding the potential for share price gains for Hankook Tire and Nexen Tire, Kim Guyon, an analyst at Daishin Securities, said, "In the short term, other companies may benefit in terms of supplying domestic finished car manufacturers, but given the structure of global demand for domestic production, the actual benefit is likely to be limited." Daishin Securities estimated the revenue loss for Kumho Tire's Gwangju Plant 2 this year at 449.4 billion won, assuming sales of 6 million tires. Considering that this accounts for 3% of the combined annual sales of the three major tire companies?Hankook Tire & Technology's expected tire division sales of 10 trillion won (1 trillion won domestic), and Nexen Tire's expected sales of 3 trillion won (474.7 billion won domestic)?the impact is relatively limited.