Kumho Petrochemical, Will It End the Long Recession After Hitting Bottom?

Improved Chinese Demand and Eased Supply-Demand Pressure Expected
Synthetic Rubber Enters Mid-to-Long-Term Profit Improvement Cycle

Amid the prolonged downturn in the domestic petrochemical industry, Kumho Petrochemical's recent stock price rebound stands out. Securities firms have a positive outlook on Kumho Petrochemical's stock price, citing benefits from China's demand recovery and improved supply-demand balance due to reduced expansion scale.

According to the Korea Exchange on the 22nd, Kumho Petrochemical's stock price rose 30.20% over the past month as of the closing price on the 21st, reaching 153,900 KRW. Although it hit a 52-week low in January, it has rebounded and is now approaching the recent high of 163,900 KRW. The KOSPI chemical index, which includes Kumho Petrochemical, rose only 4.53% during the same period, indicating that the chemical sector overall did not experience a strong rise. This reflects stock price differentiation within the chemical sector based on performance improvements.

Kumho Petrochemical recorded consolidated sales of 1.6675 trillion KRW and operating profit of 78.6 billion KRW in the first quarter of this year. These figures represent decreases of 3.1% and 40.4% respectively compared to the same period last year, but showed improved performance quarter-on-quarter in synthetic rubber, resin, and phenol derivative segments, leading the industry to assess that the company has bottomed out.

The chemical sector is expected to show a gradual recovery in the second half of the year, but due to China's influence, only a few companies are likely to achieve performance improvements, leading to anticipated differentiation. Jeong Kyung-hee, a researcher at Kiwoom Securities, explained, "In April, China's Ministry of Commerce announced the 'Second-hand Goods Renewal Action Plan' to revitalize the consumer goods market." She added, "This includes inducements to expand durable goods consumption, where the government provides subsidies for replacing used home appliances or automobiles with new ones." She further noted, "High value-added synthetic resins such as ABS, polycarbonate (PC), and synthetic rubber are used in the production of home appliances and automobiles. Among domestic companies producing these chemical products, Kumho Petrochemical stands out with synthetic rubber and synthetic resin accounting for about 59% of its sales revenue."

Another reason for the high evaluation of Kumho Petrochemical is the expectation of improved synthetic rubber segment performance due to recent rises in natural rubber prices. Yoon Jae-sung, a researcher at Hana Securities, analyzed, "Market conditions for tire-use styrene-butadiene rubber (SBR) and ethylene propylene diene monomer (EPDM) are expected to improve with front-end demand recovery, and NB latex export prices are emerging from their worst phase." He added, "These products can expand spreads due to limited capacity expansion." He also predicted, "The synthetic rubber division is entering a mid- to long-term profit improvement cycle. Having bottomed out in the fourth quarter of last year, it began a turnaround in the first quarter of this year, and further profit improvements are possible with ongoing demand recovery." Additionally, he noted, "With financial soundness, there is also potential for value-up programs through shareholder return measures such as treasury stock cancellation."

Supply-demand improvement is also expected as major customers related to NB latex, the raw material for rubber gloves, complete inventory adjustments, which is likely to act as a positive factor for Kumho Petrochemical. Kang Dong-jin, a researcher at Hyundai Motor Securities, said, "Top Glove, a customer, announced in its recent earnings report that demand is improving as buyers continue to accumulate inventory." He added, "Accordingly, Korea's NB latex export volume and prices have been improving since April." He further evaluated, "The US raised tariffs on Chinese gloves from 7.5% to 25%, which may allow Southeast Asian glove manufacturers, major customers of Kumho Petrochemical, to increase their market share in the US. The easing of competition with China in the relatively higher average selling price (ASP) US market is positive."

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