Eugene Investment & Securities said on the 30th that Kumho Petrochemical's earnings are expected to worsen due to one-off expenses. It kept a target price of 177,000 won and a "buy" investment opinion. The previous trading day's closing price of Kumho Petrochemical was 144,900 won.
In the fourth quarter of last year, Kumho Petrochemical posted sales of 1.6 trillion won, down 12% from a year earlier, and operating profit of 1.5 billion won, a plunge of 84%.
Hwang Seong-hyeon, a researcher at Eugene Investment & Securities, said, "The reasons for weak results were the expense burden from intensive overhauls and one-off expense recognition related to labor costs, and because major port inventories increased amid a year-end wait-and-see market, profitability of most products, including synthetic rubber, synthetic resin, and phenol, deteriorated."
By business unit operating margin, synthetic rubber slowed to 2.6%, and synthetic resin and other businesses swung to losses at minus (-) 3.6% and -1.4%. Phenol widened its loss to -6.1%.
In the first quarter of this year, sales and operating profit are expected to come in at 1.7 trillion won and 65.5 billion won, down 12% and 46% year over year, respectively.
Hwang said, "Quarter over quarter, profit will increase," adding, "This reflects a positive lagging effect (gains from raw material price movements) as the recent strength in the raw material bio-butadiene (BD) continues."
He added, "China's BD capacity additions this year amount to only 800,000 tons, and with lower operating rates and restructuring at naphtha cracking centers (NCC), the price rally could be sustained," while noting, "However, major tire makers are likely to face higher cost burdens, and the recent increase in tire inventories is also a headwind, so stronger demand needs to accompany this for a mid- to long-term boom to take hold."