[Click eStock] Daehan Yuhwa Lowers Target Price Despite Annual Operating Loss This Year

[Asia Economy Reporter Lee Seon-ae] Yuanta Securities announced on the 27th that it is lowering the target price of Daehan Petrochemical. The target price was lowered from 220,000 KRW to 200,000 KRW, reflecting concerns over an annual deficit this year.

First, there is an excessive surplus capacity of ethylene in the Asia region. Due to reduced operating rates of existing producers and the impact of new facilities, the surplus scale in the first half of 2022 is estimated to be 28 million tons. However, the surplus needs to be reduced to below 10 million tons for the market to recover. Accordingly, the operating loss for 2022 is expected to be 43.7 billion KRW (compared to 179.4 billion KRW the previous year), indicating poor performance.

Hwang Gyu-won, a researcher at Yuanta Securities, said, "Due to scheduled maintenance of competitors Lotte Chemical (May) and LG Chem (June), and reduced operating rates of new facilities such as Hyundai Chemical, the deficit is expected to narrow in the 2nd and 3rd quarters," adding, "However, Daehan Petrochemical's large-scale scheduled maintenance from September to November makes a return to losses inevitable."

The provisional results for the first quarter of 2022 are ‘sales of 693.7 billion KRW, operating loss of 2.2 billion KRW (operating margin -0.3%), and net income attributable to controlling shareholders of 2.5 billion KRW.’ The provisional operating loss decreased by 88.7 billion KRW compared to 86.5 billion KRW in the same period last year, marking two consecutive quarters of losses following the previous quarter’s 15.6 billion KRW loss. Although the sales proportion of ultra-high-density PE/PP for secondary battery separators rose to around 20%, severe losses continue in core petrochemical products such as polyethylene (PE) and polypropylene (PP). It should also be noted that inventory-related gains of 10 billion KRW (reversal of lower of cost or market valuation) occurred in the first quarter results.

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