Strong Performance across the Board
The authors are analysts of Shinhan Investment Corp. They can be reached at johnsoh@shinhan.com and chank@shinhan.com, respectively. -- Ed.
Earnings surprise expected for 1Q21
Hansol Chemical is expected to have registered operating profit of KRW53bn (+97.6% QoQ, +50.7% YoY) on sales of KRW171bn (+7.4% QoQ, +16.6% YoY) for 1Q21, surpassing the consensus estimate of KRW49.7bn. The strong performance was likely driven by robust sales of hydrogen peroxide and precursors for semiconductors and increased sales of acrylonitrile butadiene latex (NB latex).
Effects of NB latex capacity expansion on top of the boom in semiconductors, OLED and EV battery materials
In 2021, we expect to see steep growth in sales of hydrogen peroxide and precursors used in memory semiconductor fabrication, driven by: 1) Samsung Electronics’ capacity additions at its DRAM line (P2) in Pyeongtaek and NAND line in Xian, China; and 2) SK Hynix’s ramp-up of its new DRAM line (M16). Sales of semiconductor materials to Samsung Electronics’ foundries and TSMC should also increase sharply.
Hansol Chemical is set to supply QD sheets for Samsung Display’s large-size QD OLED line that will start operations in 2H21. It also stands to enjoy strong growth in sales of tapes and anode binders used in EV batteries with Samsung SDI’s EV battery sales forecast to surge 50.4% YoY in 2021.
Meanwhile, the per-ton price of NB latex used to make medical gloves has more than doubled recently on surging demand. The price should remain strong going forward. Hansol Chemical plans to expand its NB latex production capacity by more than threefold, and thus should witness steep growth in sales of the product from 2021.
2021 operating profit forecast at KRW212.3bn (+39.7% YoY)
Backed by strong performance across all divisions, Hansol Chemical is forecast to report operating profit of KRW212.3bn (+39.7% YoY) on sales of KRW760bn (+22.7% YoY) for full-year 2021, beating the consensus estimate of KRW204.1bn.
Retain BUY and raise target price by 12.9% to KRW316,000
We raise our target price for Hansol Chemical by 12.9% to KRW316,000 in view of: 1) 2021F operating profit of KRW212.3bn (+39.7% YoY); 2) effects of NB latex capacity expansion; and 3) expectations for new EV battery materials. We applied 2021F EPS of KRW15,020 and a target PER of 21x to arrive at our new target price. The company’s strong performance across the board and visible boost expected from NB latex capacity addition point to further upside for its share price.