Shinhan Investment Corp. has lowered its target price for Kumho Tire from 8,500 won to 8,000 won, reflecting reduced profit estimates due to European Union (EU) anti-dumping tariffs and the strengthening of the Korean won. The firm anticipates a continued decline in profits through 2027 but believes that the current stock price has already factored in much of the downside risk, maintaining a 'buy' rating.
Park Kwang-rae, a researcher at Shinhan Investment, estimated the company's third-quarter operating profit at 106.9 billion won, a 1.5% decrease from the same period last year, falling short of the market expectation of 135.3 billion won. He attributed the decline in operating profit compared to the previous quarter to EU anti-dumping tariff costs of 34.9 billion won, the impact of the strong won at 24.1 billion won, and a decrease in volume by 10.5 billion won.
Projected costs from EU tariffs and the proportion of procurement from China are expected to change from 73 billion won and 50% in 2026 to 141.5 billion won and 45% in 2027, and then to 122.4 billion won and 36% in 2028. Park noted that with the added burden of raw material costs, the fourth-quarter operating profit is expected to drop to 109.6 billion won, a 24.7% decrease year-on-year. Annual operating profits are projected to decline by 5.2% to 545.8 billion won in 2026 and by 13.3% to 473.4 billion won in 2027.
The annual production capacity lost due to the Gwangju fire, totaling 11.5 million tires, is being partially replaced through remaining capacity, expansions, and outsourcing, amounting to a total of 7 million tires. However, with the utilization rate reaching 98-100%, sales volume in 2027 is expected to increase only 3.2% to 59.33 million tires. Park further predicted that with the operation of new plants in Hampyeong and Poland in 2028, sales volume would rise to 63.79 million tires, a 7.5% increase.
While the potential for profit decline remains high through 2027, Park assessed that the current stock price reflects much of the risk, with a price-to-earnings ratio (PER) of 6 times and a price-to-book ratio (PBR) of 0.6 times.
He also noted that the sale of the Gwangju site and the resumption of dividends could be positive factors for stock price growth, but cautioned that the overhang of financial sector shares, which amounts to about 13% (with the Industrial Bank holding 7.43%), is a variable that requires monitoring.
* This article has been translated by AI.
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