iM Securities on the 27th said Hyosung TNC is set to benefit as the spandex industry enters a full-fledged boom starting this year. The firm maintained its Buy rating and raised the target price to 670,000 won from 460,000 won. Hyosung TNC's closing price in the previous session was 530,000 won.
Jeon Yu-jin, an analyst at iM Securities, said, "Since the second half of last year, spandex inventories in China have gradually started to decline, falling to the lowest level since the end of 2021. Even so, the average operating rate already reaches 85%–86%, and capacity additions are limited, leaving little room for additional supply."
Demand, by contrast, is seen as likely to expand more than in an average year amid the Middle East crisis. That is because the relative price appeal of spandex has increased compared with the past due to a sharp rise in synthetic fibers such as polyester and nylon.
It also judged that, although the valuation gap with China's major spandex producer Huafong narrowed from 2.1 times and 1.1 times at the start of the year to 1.9 times and 1.4 times, there is still room for further catch-up given it remains much lower.
In the first quarter this year, Hyosung TNC's operating profit was 86.2 billion won, up 93% from the previous quarter and 6.8% above the market consensus of 80.7 billion won. Profit in the textile institutional sector jumped, recording 73.6 billion won, up 62.8% from the previous quarter, and the operating margin reached 9.1%, the highest since the second quarter of 2022.
This was attributed to a slight increase in sales volume despite the Lunar New Year effect, and the effect of Hyosung TNC also raising its selling prices by about 3%–4% as spot prices were being increased one after another amid a steep inventory drawdown in China since the start of the year.
Jeon said, "With additional reflection of selling price hikes in the second and third quarters, a clearer profit growth trend will be confirmed," adding, "For the first time since the first quarter of 2022, the late stage of the previous spandex boom, quarterly profit will top 100 billion won, and for full-year 2026 it is expected to easily exceed 400 billion won."
The main basis for the strong outlook is that the spandex industry is performing far better than initially expected.
Jeon said, "Starting around the end of the year, a decline in spandex inventories in China was captured, and even in the off-season, polyester facilities are operating above 90%, suggesting that the long downturn appears to be ending little by little," adding, "In January, for the first time in three years, spot spandex prices rose, and this year there have been eight increases in total—five since the Lunar New Year—showing the industry is improving much more strongly than initially expected."
Accordingly, it analyzed that there is ample room to consider a further increase in the spandex blend ratio in synthetic fibers from the previous 3%–4% level.
Jeon said, "With supply limited this year and demand rising more than in an average year, the tight supply-demand balance for spandex is likely to continue at least until year-end."