S.Korean tire producers rally on strong demand, low costs

South Korean tire manufacturers enjoyed healthy earnings thanks to strong global demand for electric vehicles and new cars adding to expectations that the sector is likely to benefit from the upbeat outlook for the world’s automakers.

Hankook Tire & Technology Co., the country’s No. 1 player, on Friday reported an operating profit of 248.2 billion won ($194 million) on a consolidated basis in the second quarter, 41.6% higher than a year earlier, with sales up 11% to 2.3 trillion won. The profit beat analysts' average forecast of 223.4 billion won.

“Strong sales of tires only for EVs and high-value-added products ramped up both revenue and operating profit,” Hankook said in a statement. “The stabilization of costs for raw materials and shipping also improved profitability.”

Global car demand increased as supply of automotive chips normalized, leading to higher supplies of original equipment tires, while sales for replacement equipment tires exceeded overall market demand, said the company in a statement.

Such strong earnings came even as Hankook lost a fifth of its global capacity as it shut down a South Korean production complex due to a fire in March.

The company said its South Korean plants turned to the red in the second quarter, hurt by the shutdown and sporadic strikes, adding that factories suffered an operating loss of more than 40 billion in the first half without details for the April-June period.

Hankook has two production complexes in the country with an annual capacity of 20 million tires, respectively, while manufacturing 60 million units in overseas factories – three in China and one each in the US, Hungary and Indonesia.

The company aims to raise its revenue by more than 5% in 2023 despite the uncertainties in the second half by increasing sales of premium products such as tires 18-inches or wider for passenger cars and models for EVs.

Hankook’s shares ended up 1.5% at 37,100 won in the South Korean stock market on Friday, outperforming a 0.2% gain in the wider Kospi.

KUMHO PROFIT SOARS 48 TIMES

Its smaller rival Kumho Tire Co. also said its operating profit surged by nearly 48 times to 88.1 billion won on a consolidated basis in the second quarter from a year earlier as sales grew 12.3% to 1 trillion won.

The last time Kumho reported quarterly sales of more than 1 trillion won was in 2012.

The company said higher sales to automakers in North America and South Korea and lower raw material costs improved its profitability.

Core raw materials such as natural rubber, which had risen by about 25% last year, skidded, while the Shanghai Containerized Freight Index, a barometer of global shipping rates, tumbled to around 1,000, a fifth of the 5,109.6 record high logged last year.

Hankook and Kumho are likely to improve earnings further in the second half on the upbeat outlook for automakers, industry sources said.

Hyundai Motor Co., South Korea’s top carmaker, raised its sales growth target for this year to 14-15% from the previous 10.5-11.5%, while its affiliate Kia Corp. also raised its sales forecast.

Write to Sungsu Bae at baebae@hankyung.com
 

Jongwoo Cheon edited this article.