[Click eStock] Kumho Petrochemical, Target Price Down Due to Chemical Business Slump and Product Profitability Decline

[Asia Economy Reporter Kwon Jae-hee] Hyundai Motor Securities maintained a buy rating on Kumho Petrochemical but lowered the target price to 200,000 KRW due to declining product profitability.

Kumho Petrochemical's Q4 sales last year were 2.2 trillion KRW, and operating profit was 415.3 billion KRW, falling short of market expectations. This is attributed to one-time factors such as general regular maintenance.

The first quarter of this year is expected to continue a similar trend as the previous quarter. Despite stable profitability in synthetic rubber for tires, the chemical business is expected to underperform due to declining profitability of nitrile latex (NBL) and a downward stabilization in the phenol derivatives business.

However, the energy business's operating profit is expected to partially offset this by showing strong performance due to the rise in System Marginal Price (SMP).

Additionally, the NBL business, including Kumho Petrochemical and LG Chem, continues capacity expansion in response to increased demand, but margins have declined due to reduced exports caused by lockdowns in Southeast Asia.

On the other hand, the synthetic rubber business is expected to see improved profitability year-on-year due to lower raw material butadiene (BD) prices and stable tire demand, enhancing profitability of general-purpose rubber for tires.

Kang Dong-jin, a researcher at Hyundai Motor Securities, stated, "Kumho Petrochemical's stock price is undervalued compared to its fundamentals," adding, "If shareholder value improves through strengthened shareholder return policies or securing new growth engines via mergers and acquisitions (M&A), the undervaluation can be overcome."

Researcher Kang also added, "From an industry perspective, recovery of NBL export volume and prices after Q2 and easing of vehicle semiconductor issues are important."

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