[Click eStock] "Hyosung Chemical Emerges as a Leading Supplier of Specialty Gases for Semiconductors and Displays"

NF3 Business Value Expected to Rise... "Performance Growth Will Also Be Solid with Vietnam Expansion"

[Asia Economy Reporter Minwoo Lee] As SK Materials merges into its holding company SK, making investment in the leading semiconductor and display specialty gas company more difficult, Hyosung Chemical is emerging as an alternative. Analysts say that with its solid performance, there is sufficient momentum for further growth.

On the 26th, Hana Financial Investment maintained a 'Buy' rating on Hyosung Chemical and raised its target price by 89.2% to 700,000 KRW, citing this background. The closing price the previous day was 358,000 KRW.

With SK Materials merging and a holding company discount applied, Hyosung Chemical is expected to emerge as an alternative. SK Materials' nitrogen trifluoride (NF3) capacity is estimated at 12,000 tons, while Hyosung Chemical's NF3 (Neochem) capacity is 4,800 tons, about 40% of that. Yoon Jaesung, a researcher at Hana Financial Investment, explained, "Until now, differences in internal demand and profit margin differences due to high value-added byproduct production capacity prevented the value of Hyosung Chemical's NF3 from being highlighted. However, since last year, with the full reflection of the byproduct F2N2 gas, the operating profit margin, which was around 10% in 2018-2019, rose to 18% in the first half of this year."

Already, Neochem accounts for about 76 billion KRW in sales and 14 billion KRW in operating profit in the first half, representing 10% of the company's total profit for the period. Additionally, the 3,000-ton NF3 facility in China currently under Hyosung TNC (existing 1,500 tons + expansion 1,500 tons) is highly likely to be transferred to Hyosung Chemical in the mid to long term, which is expected to further highlight the value of NF3.

The annual 600,000-ton polypropylene (PP)/dehydrogenation (DH) expansion in Vietnam has already been completed. Once full commercial production begins next month, production capacity will double compared to the current level. Although Vietnam's COVID-19 situation is a short-term performance variable, it is likely to be resolved in the mid to long term. Researcher Yoon said, "The volatility in performance and stock price caused by the increase in confirmed cases could actually be a buying opportunity at a low price," adding, "It is highly likely that the peak of Vietnam's COVID-19 confirmed cases and the timing of increased profit contribution from the new plant will coincide."

Although the stock price has plunged 20% from its peak, contrary to concerns, third-quarter operating profit is expected to increase by 165% year-on-year to 66 billion KRW. This is similar to the previous quarter and aligns with market consensus. Hana Financial Investment projects Hyosung Chemical's operating profit next year to be 500 billion KRW with a price-to-earnings ratio (PER) of 3 times, based on positive assumptions such as full operation in Vietnam, strong PP prices, and weak propane prices. Even conservatively, it is assessed that operating profit can easily exceed 400 billion KRW, indicating that the stock has entered an absolutely undervalued zone.

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