[Click eStock] "Kumho Petrochemical, 3Q Results Better Than Expected Despite Concerns"

Strong 4Q Earnings and 7% Dividend Yield Expected
"Recent Stock Price Decline Is Excessive"

[Asia Economy Reporter Minwoo Lee] Contrary to concerns, Kumho Petrochemical posted better-than-expected earnings for the third quarter of this year, surpassing market consensus. This is attributed to the continued strong profitability of general-purpose rubber and phenol derivatives despite rising raw material costs such as butadiene.

On the 8th, Shin Young Securities maintained a 'Buy' rating on Kumho Petrochemical based on this background. The target price was lowered by 13.2% to 330,000 KRW. The closing price on the previous trading day was 171,000 KRW.

Kumho Petrochemical recorded consolidated sales of 2.2363 trillion KRW and operating profit of 625.3 billion KRW in the third quarter of this year. These figures represent increases of 88.20% and 192.52%, respectively, compared to the same period last year. Both sales and operating profit exceeded market expectations by 2.22% and 9.15%, respectively. The performance is evaluated as solid despite earlier concerns.

In the synthetic rubber segment, operating profit reached 222.5 billion KRW, up 147.8% year-on-year. Despite the sharp rise in the price of the main raw material butadiene and reduced NB latex sales by Southeast Asian glove manufacturers due to the impact of COVID-19, general-purpose rubbers such as styrene-butadiene rubber (SBR) and butadiene rubber (BR) maintained high profitability due to increased raw material prices and rising demand from customers.

The synthetic resin segment also recorded an operating profit of 71.4 billion KRW, a 96.7% increase compared to the same period last year. Despite the off-season and decreased demand in Southeast Asia, products such as acrylonitrile butadiene styrene (ABS) posted solid results. The phenol derivatives segment saw operating profit surge 288.9% year-on-year to 267.2 billion KRW. Although phenol and acetone profitability was somewhat weak, the rise in prices of BPA and epoxy resin contributed positively. Additionally, other segments’ operating profit increased by 81.6% year-on-year to 34.5 billion KRW. This was due to rising system marginal price (SMP) from oil price increases and limited regular maintenance, which improved profitability in the energy sector.

Fourth-quarter earnings are also expected to be better than anticipated. Ji-yeon Lee, a researcher at Shin Young Securities, stated, "The shipment of new volumes from Asian naphtha cracking centers (NCC) will stabilize butadiene (BD) prices. Although demand for high-value-added NB latex is weak in the fourth quarter due to increased inventory caused by the COVID-19 impact in Southeast Asia, synthetic rubber performance is expected to remain strong in the fourth quarter due to cost effects."

The dividend yield is also expected to reach up to 7%. Since the NB latex market benefited greatly from COVID-19, earnings peaked in the second quarter and have since stabilized downward, but the recent stock price decline is considered excessive. The researcher explained, "Due to the decline in BD raw material prices, synthetic rubber profitability will be maintained better than other chemical products. Assuming a payout ratio of 20% this year based on separate financial statements, the dividend per share would be 12,000 KRW, resulting in a dividend yield of 7%."

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