Analysts: Korean tyre companies outperform index
Korean tyre manufacturers have outperformed the Korean Kospi index year-to-date. According to an investor’s note published by financial analyst at Deutsche Bank, the strong showing has come thanks to “a sharp decline in raw material costs, strong earnings delivery and expectations of demand recovery in in the second half of 2013”, with the latter point welcome news for everyone.
Despite some concerns that tyre manufacturers are not controlling prices as much as the financial experts would like (with some saying there is even deliberate price cutting as a means of controlling and defending market share), the industry as a whole is said to have “avoided cut-throat price competition and margins have expanded in the past two years.” As a result the analysts now think US/EU tyre demand has bottomed and should show gradual recovery in the second half of 2013 and for 2014. Therefore recovering demand combined with product mix improvement and falling raw material costs “should keep industry margins resilient in 2013 and estimates for 2014”.
Hankook Tire shares are singled out as Deutsche Bank’s top Korean auto sector pick, with the analysts increasing 2013-2014 earnings per share estimates 4 – 5 per cent to reflect lower raw material costs.