Shinhan Investment & Securities on Dec. 5 said that for Kumho Petrochemical, earnings from NB latex, which accounts for 23% of synthetic rubber revenue, hit bottom in the second quarter and are recovering, which will drive overall growth. It maintained a Buy rating and a target price of 160,000 won. Kumho Petrochemical's closing price the previous day was 119,700 won.
Shinhan Investment & Securities projected Kumho Petrochemical's operating profit next year at 425.1 billion won, up 29% from a year earlier. Of that, the synthetic rubber institutional sector was forecast at 168.7 billion won, up 52% from a year earlier. Lee Jin-myeong, an analyst at Shinhan Investment & Securities, said, "Significant growth is expected."
In particular, it predicted that expansion of high value-added products such as styrene-butadiene rubber (SSBR) and capacity additions for ethylene-propylene rubber (EPDM) will increase topline growth centered on synthetic rubber and strengthen profit resilience.
It pointed to the United States as an area to watch. The analyst said, "The United States is the largest consumer, accounting for 37% of global nitrile glove demand," and noted, "After a 50% high tariff was imposed on Chinese latex gloves this year, the import share in August plunged to 1.7%."
Kumho Petrochemical's U.S. import volume had declined since May due to tariff uncertainty and the impact of Chinese inventories, but import volume in August rose 15% from the previous month, indicating that demand recovery and inventory drawdown have come to a close.
The analyst projected that as the import share from Southeast Asia, a key customer base for Kumho Petrochemical, expands, the company is poised to benefit.
In particular, Korea's NB latex export volume last month rose 29% from a year earlier to 68,000 tons (t), suggesting further utilization rate increases are likely.
The analyst also projected that Kumho Petrochemical could benefit from lower materials and supplies costs.
The analyst explained, "In November, the price of butadiene, a key materials and supplies for latex, plunged 26% from September," adding, "Over the same period, natural rubber, a substitute for synthetic rubber, fell 0.2% amid tight supply."
It analyzed that prices of major products—SBR (synthetic rubber) and NB latex—fell only 8% and 4%, respectively, so the benefit from lower costs is expected to materialize.
This means that since prices of natural rubber, a substitute for synthetic rubber, fell less, demand is more likely to increase for synthetic rubber products, whose prices declined more.
The analyst projected, "Kumho Petrochemical's fourth-quarter results will inevitably undergo a temporary adjustment, with a 30% decline from the previous quarter due to regular maintenance and seasonality, but from the first quarter next year, significant profit growth is expected alongside an industry recovery."