Shinhan Investment & Securities on the 4th maintained its "buy (BUY)" recommendation on HS Hyosung Advanced Materials(298050), saying a full-fledged recovery in the carbon fiber business is expected to turn a profit in the first half of next year. However, it lowered the target price by 13% to 260,000 won from 300,000 won to reflect a downward revision in global peer valuations.
Lee Jin-myeong, an analyst at Shinhan Investment & Securities, said, "With strong pricing power centered on polyester (PET) tire cords, which have the No. 1 global competitiveness, solid profitability will continue in the second half," and added, "With limited capacity additions and increased sales of hybrid tire cords, it will maintain stable profit strength."
He added, "For carbon fiber, expansion of new customers and the restart of facilities in Jeonju and Vietnam will ease fixed-cost burdens, leading to a full-fledged reduction in losses," and said, "With a turnaround to profit in the first half of next year, the value of the growth business will also come into focus."
Hyosung Advanced Materials' operating profit in the second quarter was 77.6 billion won, up 126% from the previous quarter and above the market consensus of 63.9 billion won. Operating profit in the tire reinforcement institutional sector was 64.8 billion won, up 82%. The average selling price (ASP) of tire cords rose 17% from the previous quarter, and thanks to a better product mix and high utilization, the operating margin was 11.8%.
In the super fiber institutional sector, earnings in the carbon fiber and aramid businesses continued to improve. For carbon fiber, sales volume rose 43% and prices 8% from the previous quarter, easing fixed-cost burdens and narrowing losses. Aramid maintained double-digit profitability as demand for high-performance tire cords increased despite lower demand for bulletproof applications.
The analyst said, "Due to concerns about weakness in growth businesses, the stock price fell sharply, placing the current valuation at a historical bottom," and added, "Considering the differentiated profitability of tire cords and the recovery in carbon fiber, both the core business and growth businesses need to be re-rated."