[Click eStock] KCC, Price Increase Expected... "Q2 Earnings Also Strong"

Shinyoung Securities Report

[Asia Economy Reporter Minji Lee] Shin Young Securities maintained a buy rating on KCC on the 26th and raised the target price by 20% from the previous level to 400,000 KRW. This decision was based on the expectation that profit improvement will be prominent due to price increases.

KCC recorded sales and operating profit of 1.363 trillion KRW and 77.4 billion KRW, respectively, in the first quarter, marking increases of 8.4% and 27.5% compared to the same period last year. The operating profit significantly exceeded the market estimate of 53 billion KRW, which is interpreted as reflecting a greater-than-expected improvement in operating profit due to the normalization of operations in Momentive's silicone division.

As raw material prices rise sharply, expectations for the performance of building materials companies are increasing. This is because passing on the increased raw material costs through price hikes is expected to improve profit margins. This year, annual profit margins of each company are expected to vary significantly depending on their competitiveness in passing on raw material price increases to product prices.

In March, Momentive notified a 10-20% price increase for specialty products. Researcher Sera Park of Shin Young Securities said, "Sales at the new prices began on the 1st of last month, so the operating profit margin of the silicone division is expected to improve further in the second quarter."

Furthermore, the silicone division is expected to become a long-term synergy driver for the company. Researcher Park explained, "Apart from the normalization of the market, the silicone division has achieved vertical integration with KCC's separate silicone business unit and is expanding into areas such as electrical and electronics, automotive, and new businesses. This year is expected to be the inaugural year of KCC's transformation into a silicone materials company."

The road business division's first-quarter performance appears to have slightly lower profit margins compared to the same period last year due to rising raw material prices. However, from the second quarter onward, as the upstream industries such as shipbuilding, automotive, and construction improve, price increases are expected. Researcher Park said, "The building materials and road business divisions, whose profitability has not yet recovered in the first quarter, will see profit margins normalize toward the second half of the year through price pass-through and improved operating rates starting in the second quarter. This year, a structural change is expected with profit improvements across all business divisions."

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