Capacity Expansion Drive Continues
The author is an analyst of NH Securities and Investment. He can be reached at yk.choi@nhqv.com. -- Ed.
Hyosung Advanced Materials is forecast to report sluggish 4Q22 tire cord earnings due to off-peak seasonality. However, top-line growth and profitability improvement continue at the carbon fiber business, and operating losses at the spandex business are expected to narrow.
Carbon fiber demand and price remain strong; firm’s carbon fiber capacity expansion drive continues
Despite concerns over economic downturn, Hyosung Advanced Materials is continuing to benefit from a sixth consecutive quarter of rise in the export unit price of carbon fiber from US$20.3/kg in 3Q21 to US$24.1/kg in Jan 2023. Demand for carbon fiber continues to grow as the downstream industries expand beyond leisure products such as fishing rods and golf clubs to renewable energy and aerospace applications such as CNG tanks, hydrogen tanks, insulation materials for solar ingot furnaces, wind blades, and materials for aircraft and satellites.
Hyosung Advanced Materials completed an expansion of its carbon fiber production capacity by 2,500 tons in early Jul 2022, bringing up its total production capacity to 6,500 tons. In Apr 2023, the firm plans to secure annual production capacity of 9,000 tons through an additional 2,500 tons of capacity expansion. Moving ahead, the company is aiming to expand its carbon fiber production capacity to 14,000 tons by 2025 and 24,000 tons by 2028. Among the firm’s businesses, carbon fiber is displaying clear growth.
4Q22 preview: Carbon fiber on the rise; spandex deficits narrowing
Hyosung Advanced Materials is forecast to report 4Q22 sales of W900.3bn (-9.0% y-y, -7.7% q-q) and OP of W52.2bn (-45.8% y-y, -21.0% q-q; OPM of 5.8%), with both figures to miss consensus.
[Industrial Materials] We anticipate 4Q22 sales of W768.2bn (-9.0% q-q) and OP of W60.6bn (-27.0% q-q; OPM of 7.9%). As for tire cord, we believe that both sales and OP declined on a drop in sales volume due to off-peak seasonality alongside price decrease. However, for carbon fiber, the 2,500 ton increase in capacity, which began operations in 3Q22, was fully reflected in 4Q22, resulting in sales growth. We estimate that OPM also improved q-q thanks to utilization rate expansion.
[Others] We expect sales of W132bn (+0.5% q-q) and an operating loss of W8.5bn (RR q-q; OPM of -6.5%). In China, the price of spandex climbed 0.7% q-q, while the prices of BDO and MDI (raw materials) fell 14.1% and 12.2% q-q, respectively, helping to drive spread improvement. Related deficits have likely narrowed.