[Click eStock] "Kumho Petrochemical, Current Stock Price Similar to Past Industry Downturn... Target Price 600,000"

[Asia Economy Reporter Hyunseok Yoo] Hana Financial Investment stated on the 10th that Kumho Petrochemical is expected to sufficiently defend against the downward pressure on the price and margin of nitrile butadiene latex (NBL). Along with this, it maintained the target stock price of 600,000 KRW and the investment opinion of 'Buy,' noting that the current stock price is at a level similar to past industry downturns.

Yoon Jaesung, a researcher at Hana Financial Investment, said, "On the 9th, the third-quarter (March-May) results of the glove manufacturer Malaysia's Top Glove were announced," adding, "Although sales to the U.S., where prices are relatively high, decreased due to investigations into forced labor, the margin rate was high at 64%." He continued, "This confirmed that the price decline of glove manufacturers does not directly lead to margin erosion, thereby removing the justification for the pressure to lower the raw material NBL unit price."

He said, "In the mid to long term, glove capacity expansions in Malaysia, Thailand, and China are explosive, so there is a possibility of a decline in the average selling price (ASP) of gloves," but added, "Since the expansion speed of gloves is steeper than that of NBL, the price negotiation advantage will be with NBL companies."

He emphasized, "Considering the company's policy to maintain the global number 1 market share (M/S), it will be able to sufficiently defend against downward pressure on price and margin through NBL production capacity (Capa) expansion after 2023."

Along with this, he expected demand for styrene-butadiene rubber (SBR), butadiene rubber (BR), and ethylene propylene diene monomer (EPDM) to improve due to the easing of bottlenecks in finished vehicle production. He said, "The GM CEO stated that the bottleneck in finished vehicle production was worst in the second quarter of this year and recovery is possible in the second half," adding, "This is a clear improvement trigger for SBR/BR and EPDM."

He particularly emphasized that the current stock price is similar to the level during past industry downturns. He explained, "The operating profit for the second quarter is expected to be 745.3 billion KRW, exceeding consensus by 14%," and "A high-profit cycle centered on SBR/BR and EPDM is expected from the second half of this year through next year."

He said, "The current stock price is only at a 12-month forward price-to-book ratio (12M Fwd PBR) of 1.1 times, which is the rock-bottom valuation during the 2016-2019 industry downturn," emphasizing, "The 2021 price-to-earnings ratio (PER) is 3.2 times, excessively undervalued compared to Nantex's 9.4 times." He added, "It is time to be cautious about future claims based on intuition without understanding demand and a clear interpretation of the current situation."

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