[Click eStock] Huchems Secures Mid- to Long-Term Clients... Performance Improvement

[Asia Economy Reporter Lee Seon-ae] Kiwoom Securities stated that it is possible for Hukems to improve its mid- to long-term performance and maintained its investment opinion of 'Buy' and target price of 30,000 KRW.

Hanwha Solutions, a major customer of Hukems' DNT division, announced the establishment of a new DNT plant. This move toward internalizing raw materials by a long-term demand source is expected to have a significant impact on Hukems' mid- to long-term performance. In addition, the Hanwha Group appears to be considering the establishment of a nitric acid plant, a key raw material for DNT. This is judged to be a strategic move not only to advance the CA·PU value chain but also with an eye on carbon emission rights and the green ammonia business.

The profit decline in Hukems' DNT division is not expected to occur even in the medium term. Hanwha Solutions' new DNT plant is scheduled to start operations in January 2024. Despite excellent chemical business capabilities, ramp-up and initial stabilization due to the new plant operation will require time. This means Hukems has at least three years to prepare. The company's overall margin remains high, but this is believed to be driven by nitric acid and carbon emission rights. The operating profit exposure to Hanwha Solutions' DNT division is estimated to be only about 2-3% of the total in the last two years.

DNT is difficult to export due to explosion and toxicity risks. If Hanwha Solutions does not use it, the existing plant could immediately become idle equipment. However, considering BASF/Covestro's isocyanate conversion case (TDI→MDI), it is possible to convert existing DNT facilities to MNB. Although this is expected to be less economical compared to building new facilities, it could be one option Hukems may choose. Hanwha Solutions' DNT supply contract is valid until 2032. If the supply contract is withdrawn in 2024, a penalty estimated at several billion KRW is expected. This penalty may be partially used for some facility conversion costs. Meanwhile, through cash and cash equivalents exceeding 400 billion KRW, it theoretically seems possible to directly proceed with the TDI business by acquiring idle domestic facilities and attracting new domestic and overseas customers.

Lee Dong-wook, a researcher at Kiwoom Securities, said, "A customer trying to strengthen their portfolio has shown their hand," adding, "If a reasonable response plan is not presented, investment sentiment will continue." He also said, "Dividends are good, but in this low-interest-rate era, moves to commercialize the large cash assets accumulated also seem necessary."

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