[Click eStock] "Demand to Absorb Expansion... Hyosung TNC's 4Q Earnings Exceed Expectations"

Strong Demand for Spandex Amid Popularity of High-End Apparel

Hyosung TNC Turkey Spandex Factory Exterior (Provided by Hyosung TNC)

[Asia Economy Reporter Minwoo Lee] Hyosung TNC is expected to post better-than-expected strong earnings in the fourth quarter of last year. As high-end clothing with a high proportion of spandex gains popularity, steady demand is maintained, and it is interpreted that mid- to small-sized spandex companies collapsing also brought about a positive spillover effect.

On the 5th, Hanwha Investment & Securities maintained its 'Buy' rating and target price of 1.1 million KRW for Hyosung TNC based on this background. The closing price the previous day was 530,000 KRW. This is based on the judgment that strong earnings will continue.

Hanwha Investment & Securities forecast that Hyosung TNC will achieve consolidated sales of 2.1368 trillion KRW and operating profit of 410.3 billion KRW in the fourth quarter of last year. This represents increases of 45.7% and 215.4%, respectively, compared to the same period last year. The operating profit is 9.53% higher than the market consensus. It is expected to continue strong earnings exceeding consensus for six consecutive quarters. Wooje Jeon, a researcher at Hanwha Investment & Securities, explained, "The spandex price was maintained at a record high of 10,814 USD per ton, and the margin was 6,507 USD per ton. Since contracts for the first quarter were made in a tight supply situation, the first quarter performance next year is also expected to be solid."

From last year to this year, global spandex capacity expansion was planned to increase by about 20% compared to 2020. Most of it was delayed due to COVID-19 and concentrated in the fourth quarter of last year and the first quarter of this year. Therefore, the supply-demand situation remained tight. The market expected a peak-out, which is why the stock price fell about 48.1% from the intraday high of 963,000 KRW recorded on July 16 last year.

However, maintaining an operating profit margin of 30% in the textile sector is not simply due to a capacity expansion gap. Textile demand decreased by 8% compared to 2019, before COVID-19. Researcher Jeon focused on improvement in blending ratio and restructuring of small companies. He explained, "The global clothing unit price was 9.2 USD per piece last year, up 4.5% from the previous year, showing a different trend from the roughly flat trend (-0.1%) from 2013 to 2020. This is due to the increased preference for high-end clothing with a high proportion of spandex." He added, "The number of mid- to small-sized spandex companies decreased from 22 in 2015 to 13 last year, and some closures are understood to have taken place."

Annual performance this year is forecasted at sales of 8.8409 trillion KRW and operating profit of 1.2454 trillion KRW. Sales are expected to increase by 6.7% compared to last year's forecast, while operating profit is expected to decrease by 15.7%. Although margins will decline due to excessive capacity expansion, 36% of the expansion is from Hyosung TNC, and sales volume is expected to increase by about 17%. Researcher Jeon said, "If the margin decline is limited to below 20%, this may not be a profit decline year. Since additional capacity expansion is limited due to large-scale expansions from the fourth quarter of last year to the first quarter of this year, earnings growth is expected next year."

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