Hankook Profits Fall 16 per cent

Hankook Tire Co. has reported that its third-quarter profit fell 16 per cent on higher raw material costs and a stronger currency. Net income was 44.4 billion won ($47 million) in the quarter that ended 30 September compared with 52.9 billion won ($56 million) a year earlier, the company said in a regulatory filing. Sales rose 7.9 per cent to 526.4 billion won ($558 million). Operating profit fell 27 per cent to 40 billion won ($42 million).

Hankook Tire in August cut its operating profit target for the year by 25 per cent to 196.7 billion won ($208 million), citing the currency’s strength and raw material prices. It also lowered its full-year sales forecast 2.3 per cent but didn’t provide a net income forecast at that time.

Analysts reported that the third quarter results were weaker than they expected. In addition Deutsche Bank analysts described both Hankook and Kumho stock as overvalued. “We have realized that a lot of investors have a misperception that the tyre “big three” have the same misfortune as their counterparts in the global auto industry. However, these major tyre makers maintain a very strong competitiveness and profitability, leaving very little possibility of an industry shakeout.

On the up side one Deutsche Bank report noted that “Hankook’s 2006 earnings appear to be boosted by a 9 per cent increase in domestic sales both in 2005 and 2006. This is mostly driven by price hikes,” adding: “we doubt that the market will accept further price hikes given the weak domestic consumer sentiment.”

Deutsche Bank maintained its “sell” rating for Hankook shares and “hold” in relation to Kumho Tire stock.

Michelin owns a 6.2 per cent stake in Hankook.