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Kenda set to benefit from rising China tire demand

Kenda afetr-market tires spare tires

Tire manufacturer Kenda Rubber Industrial Co (?¨′ó?ì¥) is likely to see sales growth accelerate this year, thanks to China’s booming auto market, analysts said.

The strong tire replacement demand in China and Kenda’s increasing presence in both after-market tires and spare tires will also help the company maintain stable profit margins this year, they said.

“Although the growth rate for China’s new car market has moderated from the high teens in previous years to 7.1 percent last year, the market for used cars grew at a robust 11 percent year-on-year last year to reach 4.8 million units and is expected to double to 10 million units over the next three years,” Primasia Securities Co analyst Kai Chen said in a report on Thursday.

Chen said Kenda could use its manufacturing expertise to profit from this industry trend.

Total car sales in China rose 4.33 percent to 19.31 million units last year on an annual basis, a Chinese industry group said in January. Sales for this year are forecast to increase 7 percent to 20.65 million units, according to the China Association of Automobile Manufacturers.

While spare tires generate a lower profit margin, “Kenda has successfully used the spare tires market as a stepping stone to obtain orders from auto original equipment manufacturers for higher-margin new tires,” Chen said.

The company could therefore seek contracts with more major brands in China, such as Volkswagen, he added.

Kenda, Taiwan’s second-largest tiremaker and the 27th-biggest in the world, reported NT$30.19 billion (US$1.02 billion) in consolidated revenue last year, up 8.63 percent from 2011, Kenda chairman Yang Ying-ming (???÷) told reporters in January.

Net income was NT$1.78 billion in the first three quarters of last year, or earnings per share (EPS) of NT$2.43, compared with NT$2.69 billion, or EPS of NT$3.67, for the same period of 2011, the company’s financial statement showed.

Kenda held an analysts’ conference on Wednesday, revealing net income from its core operations grew 40 percent last year with EPS of NT$3.5, with gross margin improving from 15.9 percent in 2011 to 20.5 percent through the third quarter of last year, Chen said in the report.

The company is expected to release its annual consolidated results for last year later this month.

Kenda mainly produces bicycle and motorcycle tires, but has expanded into car tires in recent years to meet rising demand from China.

It has six plants in Taiwan, China and Vietnam, with China and the US accounting for more than 50 percent of its annual revenue.

The company plans to enhance its capacity across the Taiwan Strait by increasing daily production by 24,000 tires by the end of this year, which would boost annual revenue to NT$50 billion within the next five years, Yang said on Jan. 18.

Like its bigger local rival, Cheng Shin Rubber Industry Co (?yD?), Kenda saw improved margins last year, thanks to a fall in rubber prices.

Because rubber prices are forecast to remain low and tire demand is slated to increase by 13 percent in China this year, Kenda could see its earnings increase to NT$4.01 per share this year from EPS of NT$3.52 last year, SinoPac Securities Investment Service Corp (óà?í??) said last week.

“Compared with foreign tiremakers, which generally have less than a 10 percent exposure to the Chinese market, Taiwanese firms make a higher proportion of their sales in China, with about 60 percent for Cheng Shin and 40 percent for Kenda. Therefore, Taiwanese tiremakers will benefit more than their global peers from the boom in China’s tire market,” SinoPac said in a note on Thursday.

Taipei Times