2021 OP to Reach Post-2012 Highs
The author is an analyst of Shinhan Investment Corp. He can be reached at jinmyung.lee93@shinhan.com. -- Ed.
2021 OP to reach post-2012 highs at KRW322.2bn(+111% YoY)
We now expect annual operating profit to reach the highest level seen since 2012 at KRW322.2bn (+111% YoY) in 2021. The industrial materials division should drive overall growth with operating profit likely to jump 138% YoY to KRW169.7bn for the full year. We believe tire cord ASP will continue upward on tight supply, and expect earnings of subsidiaries such as Kolon Plastics (KPL) and Kolon Glotech to recover on improving auto demand.
Operating earnings of the fashion division will likely turn to a profit of KRW29.4bn (+KRW40.1bn YoY), with increasing sales of outdoor/golf-wear adding a boost to growth and expanding online sales driving down costs.
Longer-term growth momentum: Aramid, hydrogen fuel cell materials
Kolon Industries, on June 24, announced plans to expand its aramid fiber production capacity from current 7,500 tons to 15,000 tons. Demand for aramid fibers is expected to rise at a CAGR of 7% on brisk demand for 5G fiber-optic cables and EV tires. Following the expansion of aramid production capacity, the company’s global market share is projected to climb to 18% (vs. 10% in 2020; world's third-largest supplier). Operating profit from aramid fibers should reach KRW124.4bn in 2024, accounting for 32% of company-wide profit (vs. 16% in 2021F).
Sales of hydrogen fuel cell materials are forecast to increase from KRW30bn in 2021 to KRW100bn-120bn in 2023 and reach above KRW1tr in 2030. Kolon Industries is the global leader in hydrogen fuel cell membrane humidifiers, with supply of the product continuing for Hyundai Motor’s Nexo and likely to start for the automaker’s third-generation EV platform models from 2023. Meanwhile, Kolon Industries seeks to expand the application of polymer electrolyte membrane (PEM) from buildings/power plants to vehicles going forward. Sales of membrane electrode assembly (MEA), a core component of fuel cells, should rise in earnest from 2022 upon completion of a mass production facility in 2021. PEM and MEA are expected to drive visible earnings growth in the mid/long-term, with sales to flow in from power plants and vehicles from 2023.
Retain BUY and raise target price by 11% to KRW105,000
We raise our target price for Kolon Industries by 11% to KRW105,000, reflecting upward revision of earnings forecasts. The company’s shares have gained 89% since the start of the year, backed by growing market expectations for earnings and further growth. Shares are trading sharply higher but should continue to enjoy a re-rating on structural growth, with expectations rising for recovery of the mainstay business and added momentum from aramid and hydrogen fuel cell materials businesses.