Hankook Q2 “disappointing” – Deutsche Bank analyst
While Hankook’s second quarter represented a record in terms of sales, a Deutsche Bank report has provided a metaphorical cold shower with the “disappointing” news of a 34 per cent slide in year on year operating profit. On a consolidated International Financial Reporting Standards accounting basis, pre-tax profit was also down 20 per cent, while operating profit margin fell to 7 per cent from 12.8 per cent.
These figures represent results that were “worse than expected”, according to Deutsche research analyst Sanjeev Rana. Hankook said the fall in profits was a result of higher average input costs per tonne, up 44 per cent year on year, and 18 per cent from the first quarter of 2011. In addition, while higher sales in overseas territories had shown impressive growth, weaker sales in the profitable domestic market undermined consolidated profits.
Looking forward to the second half of 2011, it appears Hankook will be raising its average selling prices, since Rana identified management’s strategy of offsetting raw material cost increases via ASP hikes in the second half, though indirect government pressure makes domestic rises difficult to implement. Hankook also expects its global output capacity to reach 100 million units by 2014, though Deutsche’s report says “additional capacity available in 2012 will be only 2m units”.
The Deutsche report concludes that rising synthetic rubber prices may scupper optimistic arguments that the second quarter was a nadir for margins. It suggests that any expected rebound in the third quarter may lead to disappointment.