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Tire makers

Surging global used car demand brightens Hankook Tire outlook

Hankook Tire’s replacement tire sales account for about 80% in its total revenue

By Jul 23, 2021 (Gmt+09:00)

Surging global used car demand brightens Hankook Tire outlook

The global tire industry is enjoying a boom driven by fast-growing used car demand in the world. Hankook Tire & Technology is seen as a key beneficiary among South Korean tire makers, given its large proportion of replacement tire sales and expected price hikes in the second half.

Shares in the country’s top tire manufacturer closed at 49,750 won ($43.2) on July 23, up 26.3% so far this year, outpacing a 13.3% rise in the wider market Kospi. Some brokerage houses including Korea Investment & Securities and Heungkuk Securities raised target prices of the stock to 65,000-74,000 won as rising used car demand was expected to ramp up demand for replacement tires. Their profitability is usually some 20% higher than one of original equipment.

US used car prices in June jumped 45.2% on-year and 10.5%, leading overall inflation. The average selling price of a secondhand car used for one year was just $80 lower than a new car of the same model, according to J.D. Power.

“More people are buying used ones as ‘the last combustion engine cars in life’, while waiting for electric vehicles (EVs) to be released in earnest in the next two or three years,” said an eBest Investment & Securities analyst Yoo Ji-woong.

Used cars are also getting more popular in the US as the global chip shortage hit car production when the government’s financial support program boosted demand for cars and travels.

Tire makers’ stocks rode on the trend with Bridgestone up 40.9% so far this year.

In South Korea, Hankook is expected to benefit more than local competitors as its replacement tire sales account for about 80% in its total revenue.

“Hankook Tire’s operating profit in the second quarter is forecast at 191.4 billion won, beating a market consensus by 14%,” said a Korea Investment & Securities analyst Kim Jin-woo. “That is strong earnings, given issues on shipments related to US anti-dumping duties.” Last month, the International Trade Commission approved anti-dumping tariffs.

Hankook is in a better position to raise tire prices than its local competitors as it is in the second-tier maker group in the world along with other global makers such as Yokohama Tire Corp. Hankook’s domestic peers – Kumho Tire Co. and Nexen Tire – are in the third-tier. Hankook raised product prices by 3-5% by regions due to higher rubber costs earlier this year. It is expected to hike prices more one or two times later this year.

Write to Sung-Mi Shim at smshim@hankyung.com

Jongwoo Cheon edited this article.

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