SEOUL, KOREA - On May 13, Nexen Tire announced a new OE deal with Mitsubishi for the Outlander Sport, the company’s strategic crossover utility vehicle (CUV) for the US market. The car is manufactured in the US and sold in the US and European markets. Nexen will begin supplying 16-18 inch HPT tires (one grade below ultra high performance tires (UHPT)) from May.
Additional OE contracts with global automakers expected in 2H13 Nexen is currently negotiating new OE deals with nine global automakers for 16 different models, and results will be announced from 3Q13. Of note, Nexen signed its first overseas OE contract with Mitsubishi in May 2012 for the Lancer, while the Outlander Sport deal is the first for 2013. We believe margins on the contract will be solid as it is mainly comprised of large-sized tires and Mitsubishi has already acknowledged Nexen’s quality through the previous supply agreement. While volume may be relatively small, we believe this may bolster efforts to secure additional global OE clients as Nexen has passed quality tests for a Japanese carmaker. As such, the agreement should ease the lingering concerns over the capacity expansion at the Changneyong plant with the increased orders and likely client diversification.
Valuation
We maintain BUY and a TP of W19,000 (10% premium to peer average on faster growth).
*Source: Korea Investment & Securities Co.
