Photovoltaic Capacity Utilization Rate Set to Increase
The author is an analyst of KB Securities. He can be reached at yc.baek@kbfg.com. -- Ed.
Target price for industry top pick raised to KRW60,000
We maintain BUY and raise our TP by 15.4% to KRW60,000 for Hanwha Solutions to accommodate upward revisions to 2020E/2021E EPS by 7.2%/19.3%. We took into consideration: (1) Rising TDI/caustic soda prices triggered by improving supply-demand dynamics (2) Profit margin improvements backed by climbing Photovoltaic capacity utilization rates. We favor Hanwha Solutions as our industry top pick.
2021 forecast: Revenue/OP to grow 13.6% YoY/43.9% YoY
We forecast 2021 revenue/OP at KRW10.1tn (+13.6% YoY)/KRW845.9bn (+43.9% YoY): (1) Chemicals should post revenue/OP of KRW4.07tn (+17.0% YoY)/KRW504.4bn (+48.5% YoY), helped by rising TDI/caustic soda prices, which had previously suffered from deteriorating supply-demand dynamics. (2) Photovoltaics should see earnings growth for the third year in a row, with revenue/OP of KRW3.89tn (+12.0% YoY)/KRW342.4bn (+21.5% YoY) supported by rebounding capacity utilization rates.
TDI/caustic soda businesses to pick up in 2021
Contrary to market concerns, LDPE/PVC margins bottomed out in 1Q20 and then improved considerably. Pandemic-induced jumps in packaging demand and low inventory levels boosted prices. On the other hand, TDI/caustic soda continued to struggle: TDI business suffered an operating loss in 1H20 amid a plunge in demand while the price of caustic soda (based on Southeast Asian imports) hit USD224/ton, the lowest since 2011. We expect TDI/caustic soda earnings to improve in 2021 with a gradual increase in demand and decrease in supply.
Photovoltaic capacity utilization rate set to increase
For this year, Photovoltaics should have an average capacity utilization rate of 88%. Shipments suffered a major blow from COVID-19 in 1H20. Deferred Photovoltaic installation demand should keep facilities operating at full capacity in 2021, alleviating fixed-cost burdens and boosting profit margins. With Europe’s 2x40 GW Green Hydrogen Initiative, Photovoltaics seems poised for growth in 2021.