x Consumer Discretionary / Korea 26 November 2012 Initiation: setting the wheels in Korea Tyre Sector motion Positive (initiation) Heightened earnings visibility for 2013E on stronger demand and Neutral stabilising raw-material prices could drive up share prices Negative Companies look poised for long-term earnings growth on price competitiveness and product mix improvements Recent share-price corrections provide a good entry point How do we justify our view? Korean tyre makers‟ price Buy (1) rating and six-month target competitiveness (versus global price of KRW57,000 (31% upside major brands) should continue to potential). help their earnings growth and market-share expansion going We initiate coverage of Nexen Tire Jun Yong Bang forward. We are equally optimistic (Nexen) with an Outperform (2) (82) 2 787 9168 about a further improvement in rating and six-month target price of
[email protected] their product mix, with the revenue KRW19,000 (15% upside potential). proportion of ultra-high- We are more positive on Nexen‟s Sung Yop Chung performance tyres (UHPT) longer-term earnings-growth (82) 2 787 9157
[email protected] increasing through the companies‟ outlook, underpinned by its capacity rising market presence globally. expansion plan in China and Korea. ■ Investment case Despite market concerns about the However, we favour Hankook Tire We believe the recent correction in recent removal of US tariffs on over Nexen, due to: 1) Hankook Tire‟s the Korean tyre makers‟ share prices Chinese tyre exports and KRW more appealing valuation, and 2) its provides a good investment appreciation against the USD, we more defensive business profile opportunity over the next six believe the different pricing points versus Nexen‟s, which is more months, as we envisage heightened for Chinese and Korean tyre makers vulnerable to possible headwinds, earnings visibility for the tyre and the fact that Korean tyre makers such as more competition from makers in 2013 on stronger demand are largely naturally hedged for the Chinese tyre makers.