Hankook net income 30% under consensus – analysts

Analysts chided Hankook Tire’s fourth quarter financials as “as expected…weak fourth quarter results.” In an investor’s note published during the week commencing 31 January, Deutsche Bank wrote that the figures were “in line with our expectations, but…30 per cent lower than consensus.”

The underwhelming performance was put down to the continually rising natural rubber prices: “Tyre makers are generally guiding for rubber prices to remain strong over the next 6-12 months and average selling price hikes remain the only way to protect margins.”

Nevertheless, Hankook is targeting revenue and operating profit growth of 11 per cent and 23 per cent year-on-year. These figures are 8 per cent and 7 per cent higher than Deutsche Bank’s estimates respectively.

“Although revenue seems achievable given [Hankook’s] guidance of 7 per cent volume growth and 5 per cent average selling price hikes, a higher-than-expected increase in rubber prices poses a major risk. To make matters worse, synthetic rubber price, which was relatively stable in the second half of 2010, appears to be on the move again,” the investor’s note observed.

Hankook’s guidance is based on average natural rubber input price of US$3,900/ton (current spot price is 40 per cent higher at US$5,500/ton) which the analysts believe “could turn out to be quite conservative.”

The problem for tyre makers, says Deutsche Bank is that it would be easy to recoup losses caused by increased input costs from price increases alone: “We doubt tyre makers will be able to achieve double-digit ASP hikes price in 2011 and see downside risk to our forecasts if natural rubber prices remain at the current level. We expect weak earnings in 1H11.”

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