[Click eStock] Hansol Chemical, Preemptive Reflection of Cost Increase Concerns

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[Asia Economy Reporter Kwon Jaehee] Cape Investment & Securities maintained a buy rating on Hansol Chemical on the 14th but lowered the target price to 320,000 KRW.

Hansol Chemical recorded sales of 207.6 billion KRW and operating profit of 35.6 billion KRW in the fourth quarter of last year. Sales increased by 5.6% compared to the previous quarter, but operating profit fell by 36.4% during the same period.

This was due to steady demand for semiconductor materials such as hydrogen peroxide and precursors following the increase in P2 operation rate, and quantum dot display (QD) materials also recorded a 10% increase in sales compared to the previous quarter. However, operating profit margin sharply declined to 17.2% compared to the previous quarter due to decreased profitability of NB latex and the reflection of year-end bonuses.

Sales in the first quarter of this year are expected to be 210.7 billion KRW, and operating profit 52.6 billion KRW, increasing by 1.5% and 47.6% respectively compared to the previous quarter.

Recently, raw material prices have been rising sharply, and it is analyzed that the cost burden of hydrogen peroxide began to increase from the fourth quarter of last year due to the rise in natural gas prices. Accordingly, it is expected to have a significant impact on the profitability of hydrogen peroxide in the first quarter.

The increase in raw material prices is expected to be passed on to product prices only in the second half of the year, so the operating profit margin in the first half is judged to be somewhat low relative to sales.

In the second half, profitability improvement is expected through external growth such as price increases of hydrogen peroxide, increased demand for semiconductor materials due to new line expansions by customers, expansion of QD-OLED TV production, and increased NB latex production.

Seongsun Park, a researcher at Cape Investment & Securities, analyzed, "The stock price has fallen significantly from its peak due to rising raw material prices and normalization of the expanded valuation after entering the secondary battery business," adding, "Concerns about rising raw material prices are already sufficiently reflected in the stock price, so as the visibility of price approval increases, concerns will simultaneously diminish."

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