[Click eStock] Daehan Yuhwa, Time to Confirm Profitability of Core Business

[Asia Economy Reporter Junho Hwang] Meritz Securities downgraded the target price of Daehan Petrochemical from 310,000 KRW to 270,000 KRW on the 1st. The target price was lowered as the earnings forecast for the second half of this year declined.

Meritz Securities projected that Daehan Petrochemical's operating profit for the second half of this year will decrease to 65.6 billion KRW. This is due to profitability deterioration caused by high raw material costs amid rising international oil prices and a price weakness shift in key products following the easing of supply bottleneck issues. Reflecting this, the operating profit for the fourth quarter of this year is expected to be around 33.5 billion KRW (operating margin 5.1%).

Additionally, the supply burden is expected to increase due to rising coal prices caused by China's power shortage, while demand is anticipated to remain limited. The Chinese government's gradual supply normalization policy is expected to lead to an increase in supply through the expansion of newly planned chemical facilities (an increase of 6.2 million tons of ethylene next year) and normalization of operating rates of existing facilities. On the demand side, although inventory levels are relatively low, cautious purchasing sentiment is expected to limit active inventory accumulation.

No Woo-ho, a researcher at Meritz Securities, stated, "It is necessary to confirm the profitability of key products rather than future growth potential," and added, "We maintain our investment opinion and present a fair target price of 270,000 KRW."

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