[Featured Stock] Kumho Petrochemical Starts with 10% Surge
[Asia Economy Reporter Lee Seon-ae] Kumho Petrochemical started with a surge of about 10%. As of 9:05 AM on the 21st, Kumho Petrochemical is trading at 192,000 KRW, up 11.63% from the previous day. It closed at 172,000 KRW the day before.
On this day, Hana Financial Investment recommended a strong buy and raised the target price by 22%, from 270,000 KRW to 330,000 KRW, stating that Kumho Petrochemical's value needs to be reassessed.
Yoon Jae-sung, a researcher at Hana Financial Investment, said, "NBL global No. 3 Taiwanese company Nantex had a PER of 10 times and EV/EBITDA of 5.8 times as of 2021, whereas No. 1 Kumho Petrochemical has a PER of 5 times and EV/EBITDA of 2.8 times, so just applying the same valuation creates about twice the upside potential." He added, "With the same valuation, the market capitalization should reach 7.5 trillion KRW, and if a 50% premium is applied to Kumho Petrochemical’s rubber business, the market cap could reach 10 trillion KRW."
The background for the need for value reassessment includes the resolution of uncertainties regarding the reduction of Asiana Airlines shares, which had been a drag on Kumho Petrochemical’s stock price, and the acquisition of Kumho Resort. In particular, the acquisition price of Kumho Resort is understood to be less than 300 billion KRW, lower than the initially expected 500 billion KRW. Although the acquisition decision is somewhat disappointing, considering the estimated net cash of 7.5 trillion KRW and a debt ratio of 50% in 2021, it is judged not to be a financially burdensome deal. Strong earnings momentum is also expected. Due to the favorable performance of NBL, operating profit in 2021 is expected to reach a record high of 1.44 trillion KRW (YoY +93%).
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Operating profit during the past boom period in 2011 was 840 billion KRW, but this year it is expected to exceed that by 72%. Also, net debt was 1.7 trillion KRW at that time, but this year it will turn into net cash of 7.5 trillion KRW. Considering recent new business expansions related to secondary batteries such as carbon nanotubes (CNT), a premium is also necessary.
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