From their perspective, the company is on track for record sales in 2010: “We expect Nexen’s 2010 sales to surpass 1 trillion won (£487.3 million; 563 million euros; US$800.8 million),” the analysts said.
Hyundai Securities’ report was a continuation of earlier advice that investors should take advantage of the “recent correction as a chance to buy [Nexen] shares.” Their rationale is that the company’s large-scale capital expenditure (which includes building production facilities in China and establishing offices across the major markets in Europe) should produce results in the medium to long term. According to a report published in June, the company’s earnings are improving “not only the head office but also the US and Chinese subsidiaries.” This is said to be due to a higher proportion of UHP tyres being sold and the recent decline in raw material prices.
However, an improvement in the performance of the company’s Chinese factory (Nexen’s only non-Korean production facility) seems to be making a real impact. According to Hyundai Securities, the Chinese subsidiary incurred “equity method losses of 22.4 billion won in 2008” and was 3.3 billion won in the red in the first quarter of 2009. However, this was expected to enter profit in the second quarter of this year.
Another report published by Korea Investment and Securities Co., Ltd. suggests that Nexen’s China plant will reap the benefits of economies of scale in the near future. According to this report, the factory produced 1.5 million tyres in 2008, a figure that will grow to 4 million 2009 and 6 million units in 2010. The daily turnover in first quarter of 2009 was apparently 1 billion won, but has “exploded” to 4 billion since April 2009. In addition, domestic sales have grown from 10% of output in 2008 to 20.2% in the first quarter of 2009.
In Korea, Nexen Tire is said to have been focusing on negotiating OE business with Hyundai Motor and Kia Motors on the basis of “competitive quality and prices.” Korea Investment and Securities Co., Ltd. analyst Sungmoon Suh believes the company is well positioned to take advantage of the instability of the wider market: “As Hyundai and Kia are suffering from rising costs, they have no choice but to purchase cheaper parts of comparable quality. In this regard, Nexen’s OE sales should continue to increase going forward with tyres supplied for new models such as the YF (redesigned Sonata) and new models for Kia’s VG luxury sedan and the redesigned Sportage, Lotze and Opirus.
In addition, Nexen’s US subsidiary reportedly recorded operating profits and reduced inventories in the first quarter of 2009. (Tyres & Accessories/Staffordshire, U.K.)
