Benefiting from Non-Chinese Demand and SpaceX News, This Stock Surged 257%... How Long Will the Rally Last? [This Week's Hot Stock]

OCI Holdings Stock Triples in 2024
Benefit from U.S. Trade Expansion Act Section 232
"Expansion of Polysilicon Production Capacity Is Key"

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The share price of OCI Holdings has more than tripled so far this year. This surge is attributed to expectations of windfall gains as the United States intensifies import restrictions on Chinese solar materials, along with news of collaboration with SpaceX. Analysts say that as demand for OCI Holdings' solar materials increases, the future trajectory of the stock will be determined by its production capacity.

Aerial view of the Alamo1 solar project in Bear County, San Antonio, Texas, operated by OCI Energy, a subsidiary of OCI Holdings. OCI Holdings

According to the Korea Exchange on April 29, the share price of OCI Holdings closed at 377,000 won on April 27, marking a 257.35% increase since the start of the year. From 105,500 won on January 2, the stock surpassed 200,000 won on March 20 and reached the 300,000 won mark on April 16, continuing its upward trend.

OCI Holdings currently ranks fourth among KOSPI-listed companies in terms of share price increase this year. The only stocks with higher growth rates are Daewoo Engineering & Construction (+787.70%), Kwangjin (+550.97%), and SK Securities (+275.87%). However, considering that the share prices of Daewoo Engineering & Construction, Kwangjin, and SK Securities are in the 30,000-won, 10,000-won, and 4,000-won ranges, respectively, the absolute increase in OCI Holdings' stock price is much larger.

OCI Holdings is a holding company established through a physical division from the energy and chemical company OCI in May 2023. Its subsidiaries include OCI Terrasus (renewable energy), OCI SE (domestic power generation), OCI E (energy solutions), OCI (advanced materials), and DCRE (urban development).

OCI Holdings is a leading player in the polysilicon sector, a core material for the solar industry. Polysilicon is the essential material that converts light energy into electricity. It offers superior fire resistance and low-temperature stability compared to standard silicon. Known as the "rice of the solar industry," polysilicon requires an extremely high-purity crystallization process of 99.99% for commercialization, making its production process highly demanding.

Reasons Behind the Stock Price Surge

There is strong anticipation for growth in the polysilicon sector. Until now, Chinese polysilicon has gained competitiveness through aggressive low pricing. According to OCI Holdings, Shin Young Securities, and others, the price gap between Chinese and non-Chinese polysilicon exceeds $8. Non-Chinese polysilicon is priced between $16 and $26, while Chinese polysilicon is around $7 to $8. However, as the United States seeks to curb Chinese polysilicon imports, demand for non-Chinese products is expected to rise.

With the enforcement of Section 232 of the U.S. Trade Expansion Act and other measures, restrictions on Chinese polysilicon are intensifying, and companies like OCI Holdings are expected to benefit. This law allows the U.S. president to restrict imports or impose high tariffs if foreign products are deemed to threaten national security. Only three companies produce non-Chinese polysilicon: OCI Holdings, Hemlock (U.S.), and Wacker Chemie (Germany). During its earnings conference call on April 23, OCI Holdings stated, "OCI supplies nearly half of the non-Chinese polysilicon in the market, and if the results of Section 232 are finalized, we expect to be recognized by the market."

Demand for polysilicon is also expanding into sectors such as space. Recently, reports that OCI Holdings is negotiating a long-term supply contract worth approximately 1 trillion won for solar polysilicon with SpaceX have sent the stock price soaring. Lee Jin-ho, a researcher at Mirae Asset Securities, commented, "The outlook for solar companies' stock prices hinges on partnerships with Elon Musk, and OCI Holdings is in the most favorable position. The planned expansion of polysilicon capacity is a sign that collaboration with SpaceX is progressing smoothly."

If Elon Musk's scenario for a 100GW space data center becomes reality, additional polysilicon demand is estimated at 250,000 to 300,000 tons. The combined production capacity of non-Chinese companies, including OCI Holdings, is less than 200,000 tons. In this situation, utilization rates for non-Chinese polysilicon producers could reach maximum levels. OCI Holdings plans to increase its production capacity from 35,000 tons to 65,000 tons by 2028.

Will the Stock Price Keep Rising?

Despite underwhelming results in the first quarter of this year, OCI Holdings' share price has soared. First-quarter operating profit was 1.08 billion won, far below the market consensus of 4.39 billion won. However, expectations of a rebound in second-quarter earnings have already been reflected in the stock price. With the announcement of Section 232 of the U.S. Trade Expansion Act, expansion of sales is becoming visible, and profitability is expected to improve, setting the stage for significant earnings growth.

The market has judged the disappointing first-quarter results as temporary. The polysilicon business posted an operating loss in the first quarter due to a decline in utilization rates resulting from a mandatory 15-month maintenance cycle and an inventory valuation loss of 13 billion won.

Currently, OCI Holdings' stock price is approaching the target prices set by brokerages. On April 24, seven securities firms set new target prices: 400,000 won (three firms), 380,000 won (one firm), 360,000 won (one firm), 390,000 won (one firm), and 430,000 won (one firm). The stock price has already exceeded the targets set by some brokerages.

The market is now focusing on the potential for further increases in target prices. The key factor is whether OCI Holdings will expand its polysilicon production capacity in the first half of this year. Han Seung-jae, a researcher at DB Securities, explained, "With non-Chinese polysilicon competitors hesitating to expand, customer demand is concentrating on OCI Holdings. If the company finalizes its expansion plans in the first half of this year, increasing capacity by more than 30,000 tons between 2027 and 2028, the target price will be raised further." DB Securities has set a target price of 360,000 won.

Some brokerages have already factored in expansion expectations in their target prices. Kyobo Securities set the highest target price for OCI Holdings at 430,000 won. Jo Hye-bin, a researcher at Kyobo Securities, analyzed, "We set a high target price-earnings ratio (PER) in anticipation of a sharp increase in profits if expansion is confirmed, and we recommend OCI Holdings as our top pick in the solar sector."

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