[Click eStock] "Spandex Demand Up with Economic Recovery... Hyosung TNC Earnings Outlook 'Clear'"

Due to a sharp drop in costs and a surge in demand... Boost in clothing demand thanks to overlapping favorable factors

Hyosung TNC Turkish Spandex Factory Exterior View

[Asia Economy Reporter Minwoo Lee] Spandex demand is expected to increase sharply due to the anticipated rise in clothing consumption following economic recovery. Accordingly, Hyosung TNC is projected to achieve strong performance exceeding market consensus even after the second quarter.

On the 7th, Hana Financial Investment forecasted that Hyosung TNC will benefit significantly as contact consumption demand recovers with the economic recovery, while raw material costs sharply decline.

In particular, despite the recent plunge in raw material prices, spandex prices are rising again. Although China's spandex inventory days increased until April 15, they fell back to 11 days as of the end of last month. Since China's spandex operating rate remained at a maximum of 95-96% throughout the first half of the year, the recent inventory reduction is interpreted as a result of increased demand.

With the expansion of COVID-19 vaccinations, the use of spandex for hygiene-related products such as masks is gradually decreasing. However, as suggested by the upward revision of sales targets (guidance) by clothing companies like Under Armour and Nike, spandex demand for apparel is rapidly recovering, driving overall spandex demand higher. Due to the decline in coal prices and reduced demand for polybutylene terephthalate (PBT), the price of the raw material butanediol (BDO) has plunged about 40% from its peak in early March.

Accordingly, Hana Financial Investment estimated Hyosung TNC's operating profit for the second quarter at 319 billion KRW. This marks a turnaround to profit compared to the same period last year and a 29% increase compared to the previous quarter. It is expected to exceed consensus by 12%. The operating profit estimate for the second half was also revised upward by 16% to 587.5 billion KRW. This is slightly above the first half and 21% above the consensus for the second half. Researcher Yoon explained, "This reflects the additional rise in spandex due to clothing demand recovery and the full effect of the sharp decline in raw material costs."

Against this backdrop, the investment opinion for Hyosung TNC was maintained as 'Buy' with a target price of 1.2 million KRW. The closing price on the previous trading day was 712,000 KRW. It was emphasized that even this level still undervalues the company's worth. Researcher Yoon stated, "This is a very conservative valuation reflecting psychological factors such as the recent sharp stock price rise and concerns about a peak-out after the peak," adding, "The estimated price-to-earnings ratio (PER) for 2021-2022 is 5 times, which is still severely undervalued compared to China's Huafon, the world's second-largest company, with a PER of 12-13 times." He further noted, "Hyosung TNC's production capacity is expected to increase by about 20% in 2022 through expansions of 15,000 tons in Turkey this August, 36,000 tons in Ningxia, China early next year, and 9,000 tons in Brazil. Even considering possible market adjustments, it is unlikely that performance will decline significantly compared to this year."

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