Analysts Recommend Korean Tyre Shares

Financial analysts are recommending buying shares in Korean tyremakers (particularly Hankook and Nexen), following their initiation of stock coverage at the end of November. Their view is that internal structural and strategic fundamentals and external conditions are now favouring Korean tyre makers: “The top three global tyre makers continue to lose market share, having lost 10 percentage points in the past 10 years. On the other hand, we expect the global market share of Korea’s three tyre makers to rise to 7.2 per cent by 2010 from 5.5 per cent in 2008 (by revenue),” Deutsche Bank wrote in an investors report dated 21 November.

The analysts see them as long-term global players “thanks to their early entry into the fast-growing Chinese tyre market.” According to Deutsche Bank, Hankook and Kumho have pole position with 15 per cent and 16 per cent of the total passenger car replacement tyre market, respectively (Hankook representatives say it is actually nearer a quarter of the market at 26 per cent). Furthermore, according to the analysts, “nearly 50 per cent of production from low-cost Chinese plants is exported, enabling them to control costs and capitalize on their improving brand name in export markets.”

Deutsche Bank’s analysis singled out Hankook as having market leadership in China and being “within reach of tier two.” While Hankook representatives would say the company is already in tier and now aiming for premium status, the fact that the company’s progression is becoming so widely accepted (and publicised) must come as welcome news.