[Click eStock] "Daehan Yuhwa, Excessively Undervalued Market Capitalization"

Earnings Rebound Expected from Q4 This Year... Naphtha Price Decline and Logistics Issues Resolved
Kiwoom Securities "Maintains Daehan Yuhwa Target Price at 320,000 KRW"

[Asia Economy Reporter Gong Byung-sun] There are expectations that Daehan Petrochemical's fourth-quarter earnings this year will rebound thanks to the decline in oil prices and naphtha caused by the expansion of crude oil supply. Additionally, considering the costs of establishing cracker and downstream plants of similar scale, Kiwoom Securities' analysis suggests that the market capitalization is also undervalued.

On the 6th, Kiwoom Securities maintained its investment opinion of "Buy" and a target price of 320,000 KRW for Daehan Petrochemical. The closing price on the 4th rose by 0.52% (1,000 KRW) from the previous day to 193,500 KRW.

Since March this year, Daehan Petrochemical's stock price has been on a downward trend due to oversupply. In the first half of this year, US crackers, which had production disruptions due to a cold wave, began restarting, and at the same time, naphtha prices, a major raw material, surged due to rising oil prices. Furthermore, logistics disruptions have limited the release of arbitrage volumes, impacting Daehan Petrochemical's performance. Arbitrage refers to trading that profits from price differences between markets.

However, a performance rebound is expected from the fourth quarter. With the expansion of crude oil supply, naphtha prices are expected to decline, and global logistics issues are gradually easing. Consequently, prices of general-purpose chemical products in the region, which had been discounted compared to the US and Europe, are anticipated to rebound. Moreover, if the demand for chemical products increases due to higher vaccine penetration rates and the development of oral COVID-19 treatments, the oversupply issue is likely to be resolved.

Meanwhile, Daehan Petrochemical plans to invest 160 billion KRW to expand its naphtha cracking center (NCC) in Onsan, Ulsan Metropolitan City, by the fourth quarter of next year. As a result, the production capacity of ethylene and propylene is expected to increase by 100,000 tons and 50,000 tons, respectively. Additionally, the production capacity of byproducts such as C4 and aromatics is also expected to expand.

Furthermore, to upgrade C4, the company plans to increase butadiene production by 150,000 tons by the first half of 2023. Researcher Lee Dong-wook of Kiwoom Securities stated, "Along with the expansion of butadiene production capacity, the Gyeongsang region, including Ulsan and Onsan, will expand derivative production capacity," and predicted, "The supply shortage will continue in 2023."

Kiwoom Securities' analysis concludes that Daehan Petrochemical is undervalued. This is because its market capitalization is far smaller than the costs of establishing cracker and downstream plants of similar scale. The researcher explained, "Even excluding the US, where costs exceed 10 trillion KRW, the cost of establishing cracker and downstream plants is around 3 trillion KRW," and added, "The market capitalization of 1.26 trillion KRW is excessively undervalued."

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