NH Investment & Securities said on the 27th that a short-term expense shock from rising materials and supplies prices will affect Kumho Petrochemical's second-quarter results this year. It maintained a "Buy" rating and lowered its target price to 180,000 won from 190,000 won. Kumho Petrochemical's previous trading day closing price was 128,000 won.
Choi Young-gwang, an analyst at NH Investment & Securities, said operating profit at Kumho Petrochemical will decline in the second quarter from the first due to a surge in key materials and supplies prices.
Currently, Naphtha Cracking Center (NCC) operators are experiencing production disruptions due to higher prices of key petrochemical materials and supplies such as butadiene (BD) and ethylene. As a result, analysts said Kumho Petrochemical is also unlikely to avoid the impact of an expense shock from the spike in materials and supplies.
Choi said, "With prices of materials and supplies such as butadiene and ethylene surging, NCC operators that produce them have reduced operating rates and suffered production disruptions," adding, "Kumho Petrochemical's operating rate this month is about 75%, down roughly 10 percentage points (p) from the previous level, and high-cost materials and supplies and the lower operating rate are expected to negatively affect second-quarter results."
However, Choi assessed that there is still a driver for a rebound in results in the second half of the year.
Choi said, "In the second half, results are expected to improve alongside a rebound in operating rates and spreads," adding, "Kumho Petrochemical's investment points remain valid, including the relatively high profitability of synthetic rubber, a better supply-demand balance for NB Latex, and a continuing increase in the share of high value-added products."