Copper Foil Business to Continue Growing
The author is an analyst of NH Investment & Securities. He can be reached at ys.hwang@nhqv.com. -- Ed.
SKC should enjoy OP growth backed by normalization at SK Nexilis’s plant #4. Construction of plants #5 and #6 is set to wrap up by 2H21, and visibility is rising for overseas facility expansion plans. In preparation for the post-Covid-19 landscape, the firm’s eco-friendly product lineups are being strengthened across the board.
Copper foil business to continue growing
Adhering to a Buy rating, we raise our TP on SKC by 36% from W110,000 to W150,000 on upward adjustment of our EBITDA estimate in light of normalization at the copper foil business (SK Nexilis) and a widening portion of high value-added products at the film business. Amid sharp industry growth, shipments of rechargeable batteries and related raw materials are expected to increase dramatically. In addition, with visibility improving for the firm’s overseas facility expansion plans, SKC is projected to sustain strong overall growth moving ahead.
We expect SKC to report 4Q20 OP of W51.6bn (+71.6% y-y, -1.8% q-q). The copper foil business has entered full production since plant #4 came online, and plants #1~3 were operating normally in 4Q20 following regular maintenance in 3Q20. Thanks to full operation of all facilities, we believe that sales and OP both improved in 4Q20. In line with growth of the overall market, SKC is planning overseas facility expansion in such countries as Malaysia, Poland, and the US.
Increasing portion of environmentally-friendly products
We believe that earnings at the copper foil business outweighed those of other divisions, with related 4Q20 OP estimated at W20.5bn. Despite high spreads for propylene oxide (PO), OP at the chemical division likely declined q-q due to opportunity costs from regular maintenance. Following regular maintenance, the firm’s chemical plants have operated normally from December, a factor that should help to offset opportunity costs of W10bn.
Thanks to soft raw material costs, OPM at the film business likely remains stable. However, 4Q20 OP was likely impacted by shipment decline (due to seasonal effects) and one-off costs (incentive payouts and disposal of unused assets). Of note, among the firm’s next generation lineups, we anticipate rapid growth for its new range of environmentally-friendly products. SKC is aiming to increase sales of ‘eco label’, which allows recycling without the need for removing labels, and ‘heat shrink PET’, which is also convenient to recycle.