The author is an analyst for NH Investment & Securities. He can be reached at yk.choi@nhqv.com -- Ed.
Adhering to Hyosung TNC as our petrochemical industry top pick, we raise our TP by 18% to W520,000. With the price of spandex remaining strong despite raw material price decrease, the spandex spread is gradually widening. We expect a full-fledged spandex industry recovery from 2024.
Maintain as sector top pick; raise TP to W520,000
We adhere to a Buy rating on Hyosung TNC, maintaining the stock as our petrochemical industry top pick. We raise our TP by 18% to W520,000 to reflect a 5% hike to 2024F OP and increased target multiple. Previously, we used Huafon Chemical’s three-month average 2024F EV/EBITDA of 5.3x. However, we view that it is now time to sensitively reflect both the positive signals in the spandex industry and the gradual rise in peer valuations. We adjust our target multiple to Huafon Chemical’s current 2024F EV/EBITDA of 5.7x.
Spandex spread widening; spandex industry to rebound in earnest from 2024
As of Nov 3, the spandex spread widened by 11% from the average seen in 3Q23. Of note, the quarterly average spandex spread showed the first rebound since 1Q23. While the BDO price per ton is down 16% (from US$1,575 on Sep 8 to US$1,330 on Nov 3), the price of spandex remains solid.
China’s spandex import volume climbed 87.6% y-y in the year to September. Meanwhile, China’s spandex export volume over the same period fell 5.2% y-y. In China, spandex demand is clearly on the rise. Considering forecasts of limited new capacity expansion in 2024 and current spandex facility utilization rates, which have recovered to the past averages, the spandex industry should rebound in earnest from 2024.
Note: Butanediol (BDO) is an intermediate chemical ingredient which is mostly used to produce spandex. It is also used as an ingredient for polymers and solvents.