[Click eStock] "Kumho Petrochemical, Synthetic Rubber Prices and Exports Both Up... Target Price 'Up'"

Kiwoom Securities raised the target price of Kumho Petrochemical (Kumho Seokhwa) to 225,000 KRW on the 15th. The analysis indicates that the prices of its main product, synthetic rubber (latex), are rising and exports are also on an upward trend.

Jeong Kyung-hee, an analyst at Kiwoom Securities, stated, "Based on Kumho Petrochemical's synthetic rubber production capacity (CAPA), the export volume of acrylonitrile-butadiene latex (NB Latex) is ten times that of styrene-butadiene latex (SB Latex)." She added, "The recovery of replacement (RE) tire demand, which had been delayed due to COVID-19, is also positively impacting the increase in synthetic rubber prices and exports." She further explained, "Although the price of the raw material butadiene (BD) has risen, margins (profitability) have improved due to the lagging effect where cost reflection is delayed."

Reflecting this, Kiwoom Securities forecasts Kumho Petrochemical's sales for the second quarter of this year to increase by 11% from the previous quarter to 1.8 trillion KRW, and operating profit to rise by 32% to 104 billion KRW. The operating profit forecast exceeds the market consensus average of 86.5 billion KRW by about 20%.

Analyst Jeong said, "The synthetic resin segment will turn profitable, recording about 3 billion KRW in operating profit," and analyzed, "The ABS margin, a major product in the synthetic resin segment, has improved due to China's 'Igu Hwanxin' (subsidy support) policy." She continued, "The phenol chain segment will also turn from a loss in the first quarter to about 11 billion KRW in profit in the second quarter," and estimated, "The functional synthetic rubber (EPDM) segment maintains steady demand, recording 24 billion KRW in operating profit."

She stated, "I believe that Kumho Petrochemical's major product groups such as NB Latex, synthetic resin, and phenol chain have passed through a supply-demand downturn that lasted 2 to 3 years and have entered a gradual recovery phase." She added, "Passing the bottom of the industrial cycle means that the corporate value has bottomed out and will rise, which is why we raised the target price." She also emphasized, "Following the cancellation of 9.2% of treasury shares in the first half of the year, the company plans to repurchase an additional 50 billion KRW worth of treasury shares," and highlighted, "Financial soundness, such as a debt ratio of only 36%, is also a reason to recommend purchasing Kumho Petrochemical."

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