[Click eStock] "Hyosung Advanced Materials Q3 Earnings Disappoint Expectations... Target Price Down"

On the 20th, Korea Investment & Securities lowered the target price for Hyosung Advanced Materials to 530,000 KRW, anticipating that the company's Q3 earnings this year will fall short of market expectations. However, they maintained a buy rating, stating that "the core tire cord business has passed its bottom, and the uncertainty that hindered the valuation of carbon fiber's growth potential has been resolved."

On the same day, Choi Goeun, a researcher at Korea Investment & Securities, said, "Hyosung Advanced Materials' Q3 sales are estimated to be 791 billion KRW, down 3% from the previous quarter, and operating profit is expected to decrease by 31% to 33.4 billion KRW. Although the profitability of the carbon fiber segment remained solid, operating profit is expected to fall 29% short of market forecasts due to a decline of over 10 billion KRW in tire reinforcement material profits."

Global tire demand remains slow to recover. One-time losses related to inventory adjustments between overseas production and sales subsidiaries were reflected more significantly than in Q2. The export price of PET tire cords from Korea fell for the fourth consecutive quarter in Q3. Carbon fiber prices were adjusted down by 6% quarter-on-quarter due to increased regional supply but are still expected to maintain a high operating margin in the 20% range.

Researcher Choi analyzed, "Reflecting the slow recovery in the North American and European tire cord markets, operating profit estimates for this year and next year have been lowered by 12% and 5%, respectively," adding, "Expectations for next year's economic recovery effects also need to be tempered." Nevertheless, he emphasized, "This earnings slump actually makes investment decisions easier. Both market conditions and profits are expected to hit bottom in Q3," and "Tire cord prices have sufficiently declined. Despite high economic uncertainty, the growth potential of carbon fiber demand remains unshaken." He also noted, "Now is the time to focus on Q4 profit growth and next year's carbon fiber capacity expansion trends."

The key issue is carbon fiber production capacity. Hyosung Advanced Materials' production capacity is currently 6,500 tons and is expected to more than double to 16,500 tons by the end of next year. Researcher Choi explained, "The capacity is expected to increase to 21,500 tons by 2025, two years ahead of the original plan," adding, "As a high-value-added new material, carbon fiber demand is expected to grow beyond economic cycles." He also noted, "Furthermore, due to technological capabilities and government regulations acting as entry barriers, Chinese companies are struggling to enter the global market," and added, "Next year, the carbon fiber segment's contribution to operating profit is expected to approach 30%."

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