NBL Revenue to Increase 7-fold 

The author is an analyst of KB Securities. He can be reached at  jeff.kim@kbfg.com. -- Ed.

 

Reiterate BUY with TP of KRW320,000; New-growth business in full swing         

We maintain our TP of KRW320,000 (20.6x 12m fwd P/E) and reiterate BUY for Hansol Chemical given our outlook for high earnings growth. We anticipate 2021E-2023E OP CAGR of +27% for Hansol Chemical, since:

(1) starting this year, the company’s new-growth business for NB latex (NBL) should help accelerate earnings improvements (i.e., increase in production capacity from 10k tons in 2020 to 80k tons in 2021); and

(2) capacity additions by customers heavily reliant on the company (e.g., Samsung Electronics, SK hynix, TSMC, Samsung SDI, Samsung Display) should lead to an increase in shipments of semiconductor, display, and EV materials over the next three years. 

NBL revenue to increase sevenfold         

The NBL market is currently suffering an extreme supply shortage due to surging demand for latex gloves (i.e., medical/health care); NBL prices have doubled YoY to USD2,000 in 1Q21. We expect NBL revenue for Hansol Chemical to grow by 622% YoY from KRW10.8bn in 2020 to KRW78.0bn in 2021, and to nearly KRW200.0bn in 2022. Such explosive growth should be possible, given that Top Glove—the global leader in latex gloves that accounts for half of Hansol Chemical’s NBL revenue—has been seeing huge improvements in its earnings this year (i.e., increase in OP of 6.4x YoY to KRW3.8tn, with OPM of 62%) and accepting the price increases for NBL.   

1Q21 earnings to surprise, with OP amounting to KRW53.1bn 

Despite seasonal factors (i.e., earnings tend to be lower in 1Q), we expect Hansol Chemical to deliver an earnings surprise in 1Q21, with OP reaching an all-time high of KRW53.1bn (+98% QoQ, +51% YoY; 31.1% OPM)—higher than the market consensus (KRW50.0bn). The earnings run should continue through 3Q21 as sales of precursor and QD (quantum dots) materials both grow 30% YoY. We expect the company’s precursors business to benefit from the diversification of its customer base (i.e., Samsung Electronics accounting for 40%, TSMC 30%, SK hynix 30% of revenue), while QD shipments should grow fivefold as Samsung Electronics prepares for the release of its QD-OLED TVs.   

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