[Click eStock] "KCC, Strong Performance Expected in Second Half... Led by Building Materials and Paint Divisions"

[Asia Economy Reporter Lee Jung-yoon] Shin Young Securities maintained a buy rating and a target price of 550,000 KRW for KCC on the 4th, expecting the company to continue its strong performance from the second quarter into the second half of this year.

KCC's sales in the second quarter of this year were provisionally estimated at 1.7559 trillion KRW, up 16% year-on-year, and operating profit increased by 40.4% to 164.2 billion KRW. These results exceeded Shin Young Securities' estimates by 5.3% and 13.3%, respectively.

The background to these better-than-expected results includes increased sales in the silicon business division compared to the previous quarter, and margin improvements in the building materials and coatings business divisions.

Additionally, the silicon business division, which was expected to have lower sales compared to the previous quarter, is estimated to have recorded sales of 950 billion KRW, slightly exceeding the first quarter. This was due to continuous price increases of high value-added product groups, steady production performance, and some foreign exchange effects. The reason for the expected lower sales compared to the previous quarter was that in the first quarter there was a one-off issue caused by the Shanghai lockdown in China, which led to an imbalance in the supply and demand of basic silicon, price increases, and a reflective benefit for overseas basic silicon manufacturers, resulting in favorable performance; thus, this issue disappeared in the second quarter. However, the price of organosilicon has continuously declined since the first quarter, worsening the margin of basic silicon products, and the operating profit margin (OPM) is estimated to have fallen to the 9% range compared to the first quarter.

Researcher Park Sera of Shin Young Securities said, "In the coatings business division, following price increases in the first half of the year, the stabilization of oil prices is expected to prominently improve profits, and with the recent expansion of shipbuilding orders, an increase in sales of marine coatings is anticipated." She added, "In the building materials division, although some completion volumes were delayed in the first half, differentiated market positioning allowed smooth price increases, resulting in favorable profit margins. From the second half, as completion volumes rise significantly, additional profit growth can be expected."

She continued, "The silicon business is expected to follow a similar trend to the first half overall, but the recent continuous decline in organosilicon prices poses a risk of profit margin deterioration. However, the company is continuously converting its basic silicon production lines to high value-added product groups, and following the completion of machinery and equipment within this year, commercial production is scheduled for 2023." She added, "Attention should be paid to the fact that as the proportion of high value-added products increases, profit margins could improve to the mid-to-high teens percentage."

KCC is expected to achieve an operating profit of 591.5 billion KRW this year, a 52.1% increase year-on-year, driven by growth in the building materials and coatings business divisions and foreign exchange effects. In 2023, it is estimated to reach 644 billion KRW due to profit improvements from the silicon product mix effect.

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