Analysts raise Hankook price target

Financial analysts have raised their share price target for Hankook stock following the publication of the Korean-based manufacturer’s first quarter results. Writing in an investor’s note published on 21 April, Morgan Stanley analysts wrote: “We are raising our price target for Hankook Tire to 38,000 won and maintaining our equal-weight rating.” The analysts wrote that their change in price target is “predominately driven by our revised earnings forecasts, as well as adjusted share count.”

Commenting on the specifics of the first quarter results, Morgan Stanley observed: “First quarter results were largely in line with expectations, though operating profit was surprisingly resilient. With continued price hike plans in place, in the face of all-time high raw materials costs, we believe the company’s margins will not improve significantly.” he investor’s note continued: “Given the more than 25 per cent year-to-date outperformance relative to KOSPI, we think the stock is fairly valued.”

Commenting on the firm’s most recent statements relating to profitability, the analysts reported: “parent operating profit of 136 billion won (14.8 per cent operating profit margin) significantly beat consensus and our forecast by ~44 per cent, pre-tax profit of 144 billion won was in line with expectations.”

Hankook’s management said it increased prices by ~5 per cent globally in the first quarter of 2011 and plans a further 6 – 7 per cent hike in the second quarter of 2011. “Given that market leaders have already gone ahead with price increases of a similar magnitude, Hankook’s price increase should not be a problem,” Morgan Stanley’s note said, adding: “Despite a concern that the planned price hikes will not be enough to fully offset the cost burden, if natural and synthetic rubber prices stabilize further, margin expansion could materialize. The trouble is Hankook has no capacity growth until the end of next year, which will likely limit its EPS growth, as it runs at full capacity globally.”

Furthermore, Hankook’s China and Hungary plants are said to have showed margin improvements quarter-on-quarter. In particular, Hungary plant’s results are described as “notably improving,” due to its capacity expansion from 6 million to 10 million units at the end of 2010.

Related news:

• Hankook sales surged 16.3% from Q1 2010 to 1.4 trillion won on European growth

• Hankook launches new global TV campaign including ads in UK and Europe