[Click eStock] “Hansol Paper Establishes Operating Profit Base Despite COVID-19”

[Asia Economy Reporter Eunmo Koo] DB Financial Investment forecasted that Hansol Paper, despite its fourth-quarter performance last year falling short of expectations, has established a foundation for generating operating profits in the 30 billion KRW range per quarter, and is expected to show a different performance this year.

On the 7th, DB Financial Investment analyst Kyungha Yoo reported that Hansol Paper's standalone sales in the fourth quarter of last year were 436.9 billion KRW, down 8.4% year-on-year, while operating profit increased by 18.4% to 23.2 billion KRW. Although profitability improved, it did not reach the initially guided operating profit in the high 20 billion KRW range.

Analyst Yoo explained, "The decline in prices for industrial paper and specialty paper was larger than expected," adding, "The net income attributable to controlling shareholders was 9.7 billion KRW, but due to impairment related to the European thermal paper sales subsidiary and increased corporate tax expenses from the sale of idle real estate, there was a somewhat significant gap compared to operating profit."

Despite the contraction in the real economy caused by COVID-19, Hansol Paper's operating environment did not deteriorate significantly. Analyst Yoo stated, "At the beginning of this year, price increases of 8-10% were announced for printing and industrial paper, and currently about 3-4% of the increase appears to have been accepted," adding, "Pulp prices, which account for about 30% of total costs, have stabilized since February, and due to raw material lagging effects, input cost reductions are expected through the first half of the year."

Industrial paper continues to enjoy favorable market conditions due to the shutdown of Shinpoong Paper's facilities and the stabilization of domestic waste paper prices at lower levels. Additionally, "Although demand for specialty paper is expected to weaken due to the spread of lockdowns in major export regions such as Europe, the increase in label paper demand from growing parcel logistics is expected to partially offset sales declines," he predicted.

Analyst Yoo noted, "Investor confidence in the company is not strong due to several investment failures and guidance misses," but added, "Looking at figures such as debt ratio and free cash flow, it is clear that the company's fundamentals have significantly changed."

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