Kumho Petrochemical, Rating Upgrade Relay

Profitability and Financial Stability Improve... Ratings Revised from 'Stable' to 'Positive' Consecutively

[Asia Economy Reporter Park Jihwan] Kumho Petrochemical's credit ratings are being upgraded across the board. This is due to noticeable improvements in profitability and financial stability recently.

According to the credit rating industry on the 24th, NICE Credit Rating changed Kumho Petrochemical's long-term credit rating outlook from 'Stable' to 'Positive' the day before. Previously, Korea Ratings and Korea Investors Service also upgraded Kumho Petrochemical's rating outlook from 'Stable' to 'Positive'.

Yoo Junwi, Senior Researcher at Korea Ratings, explained, "Kumho Petrochemical's financial stability has improved thanks to expanded operating cash flow, and under favorable supply and demand conditions for latex, it is self-funding investments and other expenses based on excellent operating cash flow capacity. The improved financial stability is expected to be maintained, which has been reflected in the rating."

Kumho Petrochemical's sales in the third quarter of this year were 1.1883 trillion KRW, down 2.3% compared to the same period last year. However, operating profit surged 212.7% to 213.8 billion KRW. Compared to the previous quarter, sales and operating profit increased by 15.8% and 78%, respectively, recording strong performance. The operating profit margin in the third quarter rose to the 18% range, 12.4 percentage points higher than 5.6% in the third quarter of last year. The cumulative third-quarter margin was 13.6%, the second highest ever after 16.3% in 1998. This marks the first time in nine years since 2011 that a double-digit profit margin above 10% has been achieved.

The significant improvement in profitability was driven by NB latex. Demand for NB latex, used in medical and hygiene gloves, surged due to the COVID-19 pandemic. Additionally, increased demand for ABS (high value-added synthetic resin) due to improvements in the automotive and electronics industries contributed to the results.

The increase in profitability led to improved financial soundness. While operating cash flow from business expanded, the absence of large-scale investments and dividend payments at usual levels reduced cash demand, resulting in improved key financial indicators. Notably, the net debt ratio, which exceeded 40% at the end of 2016, decreased to 9.4% as of the end of September this year. Lee Jaeyoon, Senior Researcher at NICE Credit Rating, evaluated, "The current cash generation trend is expected to continue in the mid to short term, and a very strong financial structure is anticipated to persist for the time being."

Kumho Petrochemical is expected to record an operating profit of 251 billion KRW in the fourth quarter of this year. This is more than 14 times the 17 billion KRW recorded in the fourth quarter of last year. Kim Hyuntae, a researcher at BNK Investment & Securities, diagnosed, "Strong demand for hygiene products due to COVID-19 combined with the recovery of key industries leading to robust performance of main products such as synthetic rubber and ABS suggests steep earnings growth is expected for the foreseeable future."

This content was produced with the assistance of AI translation services.