Korean tire makers post double-digit Q3 profit margins; outlook bright

South Korea’s three leading tire makers posted their highest-ever quarterly profit margins in the third quarter, boosted by tire price hikes, falling raw material prices and lower shipping costs.

Analysts expect the three majors’ strong business performance to continue at least until the first half of next year.

Industry data showed Hankook Tire & Technology Co., Korea’s top tire manufacturer, saw its third-quarter operating profit more than double to 396.3 billion won ($305 million) from the year-earlier period.

No. 2 player Kumho Tire Co. and third-place Nexen Tire Corp. posted 96.2 billion won and 69.7 billion won in operating profit, respectively, in the July-September quarter. Their profits rose 4,045.6% and 6,214.8%, respectively, from a year earlier.

Hankook Tire’s third-quarter operating profit margin stood at 16.9%, up sharply from 8.4% in the year-earlier period. Kumho and Nexen’s profit margin increased to 9.8% and 10.1%, respectively. Each posted a profit margin of 0.2% a year earlier.

INCREASED SALES OF HIGH-END PRODUCTS

The companies attributed strong quarterly profits to tire price hikes and increased sales of high-end products such as tires 18 inches or wider for passenger cars and models for electric vehicles.

Hankook’s 18-inch and larger-sized tires for passenger vehicles accounted for 43.4% of its entire tire sales in the third quarter, up 2.3 percentage points from the year-earlier period.

Such tires for Kumho accounted for 38.6% of its total tire sales, up 3.3 percentage points from a year ago.

Both original equipment (OE) tires and replacement equipment (RE) tires saw decent sales growth on increased demand from global automakers, they said.

As demand for RE tires is growing fast in line with robust sales of electric cars, Hankook said it will increase its production of EV tires for replacement purposes.

Hankook Tire currently supplies its products to several global and Korean auto brands, including Porsche, Audi, BMW, Volkswagen, Tesla, China’s NIO and Hyundai Motor Co.

LOWER PRICES OF RUBBER, FREIGHT RATES

The three tire makers said their strong third-quarter earnings were also aided by falling prices of raw materials such as synthetic rubber and carbon black, and lower shipping costs.

Hankook’s third-quarter ratio of cost of goods sold (COGS) stood at 66.6%, down by 9.5 percentage points from the year-earlier period.

Kumho’s COGS ratio fell 12.2 percentage points year on year to 71.7% while Nexen saw its COGS ratio fall 11.2 percentage points to 70.6%.

COGS, which refers to the direct costs of producing the goods a company sells, is a key indicator of a company’s profitability.

“The fourth quarter is traditionally a peak season when demand for winter tires, a high-margin product, increases, and the trend of price increases is expected to continue for the time being,” said an official at a domestic tire maker.

Write to Sungsu Bae at baebae@hankyung.com

In-Soo Nam edited this article.