The top three tire manufacturers here — Kumho Tire, Hankook Tire and Nexen Tire — are on a path for profitable growth on increasing sales for bigger and premium tires, as consumers display unwavering preference for SUVs and luxury sedans, according to data and analysts, Tuesday.
Buoyed by the improved product mix focusing on tires larger than 18 inches, Kumho Tire has reported an outstanding operating profit growth of 167 percent for the first quarter from a year earlier. The company is set to keep enhancing its product portfolio with the focus on premium and big tire markets this year.
The company also hopes to create a fresh profit channel with the launch of its EnnoV brand for electric vehicles (EV). The EV-exclusive tire brand will launch diverse premium products in the latter half of this year.
The EV-specific tires also come with higher margins than other tire segments, coupled with the big tires for typical vehicles with internal combustion engines.
Market analysts expected the tire manufacturer to keep generating robust earnings in the second quarter on solid tire demand in Europe and North America.
“Kumho Tire was able to achieve sales growth of 4.6 percent between January and March on solid sales for both original equipment tires and replace equipment tires in the two regions,” Hi Investment & Securities analyst Cho Hee-seung said.
The analyst also painted a rosy outlook on the firm’s plan to widen the sales portion for big tires (over 18 inches) to 42 percent this year.
“On top of that, the firm is forecast to improve its profitability on increased capacity from its plant in Vietnam,” the analyst said. The company completed the expansion of its manufacturing facility in Vietnam last year, which will enable Kumho Tire to produce 12.5 million tires annually from 6 million earlier.
Daol Investment & Securities raised the target stock price for Kumho Tire to 11,000 won ($7.96) per share from 8,000 won, reflecting on the strengthened product mix and enhanced capacity from the factory expansion.
“Kumho Tire was able to generate the steep earnings growth on diversified sales channels after expanding its factory and solidifying its premium product mix,” said Yoo Ji-woong, an analyst at the brokerage house.
Hankook Tire also released Tuesday stronger-than-expected first-quarter earnings.
The company generated 398.7 billion won in operating profit, up 108.8 percent, during the same period on the rising sales portion of premium tires. It also reported 2.12 trillion won in sales, up 1.1 percent from the previous year.
"The earnings growth was driven by our increased sales portion of value-added products targeting high-performance vehicles," a company official said.
Nexen Tire is also widely expected to have chalked up stable earnings for similar reasons.
According to market tracker FnGuide, the tire firm is projected to report an operating profit of 64.3 billion won, up 297 percent during the same period.
The company is scheduled to release its first-quarter earnings on Thursday.
The company has adopted a similar strategy of expanding its big tire sales portion to 34.5 percent this year.