Improvements across the Board
The author is an analyst of KB Securities. He can be reached at yc.baek@kbfg.com. -- Ed.
1Q21 earnings beat market consensus by significant margin
— Kumho Petrochemical posted 1Q21 revenue of KRW1.85tn (+51.3% YoY, 35.4% QoQ) and OP of KRW612.5bn (+360.1% YoY, 122.7% QoQ); OP beat the market consensus (KRW470.6bn; FnGuide, Apr 14) by a significant margin.
— Synthetic Rubbers/Synthetic Resins/Phenol Derivatives beat our estimates. Synthetic Rubbers/Synthetic Resins earnings enjoyed a boost from strong downstream demand (e.g., tire, consumer electronics).
Improvements across the board
— Synthetic Rubbers revenue came in at KRW765.9bn (+63.2% YoY, +34.3% QoQ) and OP at KRW292.1bn (+340.6% YoY, +98.4% QoQ; 38.1% OPM). NB Latex remained highly lucrative, and tire rubber (e.g., HBR, SBR) margins saw major improvements YoY. General-purpose-rubber facilities are likely to have operated at full capacity given that a portion of general-purpose-rubber lines were refitted for specialty rubber. The facilities’ utilization rate began climbing in 2018 after being held at around 70% by a supply glut.
— Synthetic Resins saw revenue climb to KRW419.9bn (+47.0% YoY, +26.9% QoQ) and OP KRW89.3bn (+239.5% YoY, +171.4% QoQ). Brisk downstream demand pushed up ABS/PS prices and margins. Also, PPG margins improved QoQ thanks to recovering demand for urethane materials.
— Phenol Derivatives (Kumho P&B) turned in revenue of KRW531.6bn (+53.3% YoY, +49.9% QoQ) and OP of KRW193.2bn (+1,310.2% YoY, +107.1% QoQ). BPA/phenol prices jumped thanks to growing IT/consumer electronics demand and rising epoxy resin prices. BPA supply remains tight because of routine plant maintenance.
2Q21 earnings to top 1Q21 earnings
— We expect a QoQ increase in Synthetic Rubbers OP in 2Q21 given that tire rubber ASP is maintaining an uptrend while feedstock (BD) prices are holding steady. NB Latex margins should remain strong considering tight supply.
— Synthetic Resins/Phenol Derivatives earnings should also improve QoQ in 2Q21, as demand will be bolstered by high-demand seasonality and ABS/PS/BPA supplies will be cut by regular plant maintenance.