IBK Securities said on the 17th that earnings for Kolon Industries are expected to improve on better profitability in industrial materials and chemicals. It maintained a "buy" investment opinion and raised its target price to 86,000 won from 62,000 won. Kolon Industries' previous trading day closing price was 71,200 won.
Researcher Lee Dong-uk at IBK Securities said in a report on the 17th that one-off expenses that occurred at a subsidiary in the industrial materials institutional sector of Kolon Industries have been resolved and the profitability of key products has improved, leading to a rebound in results. IBK Securities projected that Kolon Industries' operating profit in the first quarter of this year will come in at 42 billion won, up 328.3% from the previous quarter.
Lee said, "While one-off expenses that occurred at subsidiaries such as Kolon Glotech and Kolon ENP in the previous quarter are being removed, higher spot prices for tire cord and improved aramid utilization will drive a recovery in profitability in the industrial materials institutional sector."
The chemicals institutional sector was also expected to continue its recovery trend. Lee said, "The strength in the petroleum resin market is continuing as reduced supply from competitors' plant closures coincides with a favorable exchange-rate environment," projecting that operating profit in the chemicals institutional sector will rise 15.3% from the previous quarter to 32.4 billion won.
A shift in the business portfolio toward high value-added industrial materials was also cited as a mid- to long-term growth driver. Kolon Industries plans to invest about 34 billion won to complete by Apr. this year the capacity expansion for modified polyphenylene oxide (mPPO) at Gimcheon Plant 2 in Gimcheon, North Gyeongsang Province. mPPO is a low-loss material for copper-clad laminates (CCL) used in artificial intelligence (AI) semiconductors and AI servers, and high-performance printed circuit boards (PCB) for 6G.
Lee said, "This expansion will serve as a catalyst for shifting the chemicals institutional sector portfolio from commodity petrochemicals to high value-added electronic materials," adding, "It is also positive that demand for high-spec substrates is rising quickly as global AI data centers and servers expand."
Lee added, "Given that mPPO is a specialty material with a relatively short expansion lead time, preemptive facility investment itself is likely to lead to a supply advantage and entry barriers," noting, "Kolon Industries is also understood to be reviewing additional mPPO expansions."