"Continued Profitability Expected for General Rubber... Kumho Petrochemical Target Price 245,000 Won"

[Asia Economy Reporter Park So-yeon] KB Securities maintained its investment opinion of 'Buy' and a target price of 245,000 KRW for Kumho Petrochemical.

According to FN Guide on the 13th, KB Securities emphasized in its recent report on Kumho Petrochemical that "the high profitability of general-purpose rubber continues due to limited new capacity expansion, and the valuation attractiveness has increased due to the short-term sharp stock price decline."

It is expected that the first quarter sales and operating profit will be 2.0243 trillion KRW and 401.4 billion KRW, respectively, in line with consensus.

First quarter synthetic rubber sales and operating profit are expected to decrease year-on-year to 697.3 billion KRW and 153.4 billion KRW, respectively. The selling price of general-purpose rubber is expected to slightly increase compared to the previous quarter, supported by rising international oil prices.

However, in the case of NB latex, the selling price is estimated to have fallen by more than 20% compared to the previous quarter. The supply expansion due to new capacity additions of NB latex appears to be ongoing.

First quarter phenol derivative sales and operating profit are expected to be 506.1 billion KRW and 121.5 billion KRW, respectively, with a profit decrease compared to the first quarter of last year. The BPA price, which turned weak from the second half of last year, continues to decline in the first quarter of this year.

For general-purpose rubber, the average operating rate due to large-scale new capacity expansions in China from 2011 to 2013 remained in the 60% range for a considerable period. Profitability of general-purpose rubber began to rise from the second half of 2019 and is judged to continue high profitability in 2022.

The background of the high profitability of general-purpose rubber is that future new capacity expansions are very limited due to past large-scale oversupply, and the price of the raw material butadiene is expected to stabilize downward. Tire demand is expected to increase again from 2023, when the COVID-19 endemic is anticipated.

Baek Young-chan, KB Securities analyst, said, "Due to severe oversupply in the past, there has been almost no new capacity expansion for general-purpose rubber from 2015 to 2023," adding, "The past supply concerns have become an opportunity, and the profitability of general-purpose rubber is expected to continue rising until 2023."

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