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 price has more than tripled since the beginning of this year. The company is expected to benefit from the United States’ tightening of import restrictions on Chinese solar materials, as well as recent news of a potential partnership with SpaceX. With demand for OCI Holdings’ solar materials rising, analysts believe the future trajectory of its stock price will depend on 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

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According to the Korea Exchange on April 29, OCI Holdings’ stock closed at 377,000 won on April 27, marking a 257.35% surge since the start of the year. The price, which stood at 105,500 won on January 2, surpassed 200,000 won on March 20 and continued its upward trend, reaching 300,000 won on April 16.

OCI Holdings’ stock price increase ranks fourth among KOSPI-listed companies this year. Only Daewoo Engineering & Construction (+787.70%), Kwangjin (+550.97%), and SK Securities (+275.87%) saw higher percentage gains. However, considering that the stock 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 price increase for OCI Holdings is much larger.

OCI Holdings is a holding company that was spun off from the energy and chemical company OCI in May 2023. Its affiliates include OCI Terrasus in renewable energy, OCI SE in domestic power generation, OCI E in energy solutions, OCI in advanced materials, and DCRE in urban development.

OCI Holdings plays a leading role in the polysilicon sector, a core material for the solar industry. Polysilicon is the key material that converts light energy into electricity. It is more heat-resistant and stable at low temperatures than regular silicon. Although often called the “rice of the solar industry,” mass production requires an ultra-high purity crystallization process of 99.99%, making manufacturing highly challenging.

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There are high expectations for growth in the polysilicon business. Until now, Chinese polysilicon has maintained competitiveness by aggressively pushing low prices. According to OCI Holdings and Shin Young Securities, the price difference between Chinese and non-Chinese polysilicon exceeds $8-non-Chinese polysilicon is priced at $16-26, while Chinese polysilicon is around $7-8. However, as the United States moves to curb imports of Chinese polysilicon, demand for non-Chinese products is expected to rise.

With the U.S. Trade Expansion Act Section 232 and other measures against Chinese polysilicon coming into force, non-Chinese companies such as OCI Holdings are likely to benefit. The law allows the president to restrict imports or impose high tariffs if foreign products are deemed a threat to U.S. national security. There are only three companies producing non-Chinese polysilicon: OCI Holdings, Hemlock in the United States, and Wacker in Germany. In the earnings conference call held on April 23, OCI Holdings stated, “OCI supplies nearly half of the non-Chinese polysilicon volume, and if the results of Section 232 are finalized, our position will be recognized in the market.”

Demand for polysilicon is also expanding into the space sector. Recently, OCI Holdings’ stock price soared after reports that the company is negotiating a long-term supply contract worth around 1 trillion won for solar-grade polysilicon with SpaceX. Lee Jin-ho, an analyst at Mirae Asset Securities, commented, “The stock price direction for solar companies changes according to partnerships with Elon Musk, and OCI Holdings is in the most advantageous position. The plan to expand polysilicon production hints that collaboration with SpaceX is progressing smoothly.”

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If Elon Musk’s scenario for a 100GW space data center materializes, additional polysilicon demand is estimated at 250,000 to 300,000 tons. The combined production capacity of non-Chinese suppliers, including OCI Holdings, is less than 200,000 tons. In this situation, the operating rate of non-Chinese polysilicon plants is bound to reach maximum levels. OCI Holdings plans to increase its production capacity from the current 35,000 tons to 65,000 tons by 2028.

OCI Holdings’ stock price has risen despite underperforming expectations in the first quarter of this year. The company posted an operating profit of 10.8 billion won in the first quarter, significantly below the market consensus of 43.9 billion won. However, expectations for a rebound in second quarter performance have been reflected in the stock price. With the announcement of Section 232 of the U.S. Trade Expansion Act making sales expansion more tangible, there are forecasts that profitability will improve and that OCI Holdings is entering a phase of genuine profit growth.

The market views the disappointing performance as temporary. The polysilicon business posted a loss in the first quarter, mainly due to a drop in operating rates caused by mandatory legal maintenance on a 15-month cycle and 13 billion won in inventory valuation losses.

Currently, OCI Holdings’ stock price is close to the target prices set by securities firms. On April 24, seven brokerages 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 price has already surpassed some of the target prices.

The market is watching for the possibility of further target price increases. The key issue is whether polysilicon production capacity will be expanded in the first half of this year. Han Seung-jae, an analyst at DB Securities, explained, “As competitors producing non-Chinese polysilicon hesitate to expand, client demand is concentrating on OCI Holdings. If the current production capacity of 35,000 tons is increased by more than 30,000 tons in 2027-2028 and expansion is confirmed in the first half of this year, the target price will rise further.” DB Securities set its target price at 360,000 won.

Some companies have already factored expansion expectations into their target prices. Kyobo Securities set the highest target price for OCI Holdings at 430,000 won. Jo Hye-bin, an analyst at Kyobo Securities, explained, “We set a high target price-to-earnings ratio (PER) to account for the potential sharp increase in profits if expansion is confirmed, making OCI Holdings our top pick in the solar sector.”

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