Entry into Market for Silicon Anode Materials
The authors are analysts of Shinhan Investment Corp. They can be reached at johnsoh@shinhan.com and chank@shinhan.com, respectively. -- Ed.
3Q21 OP to exceed market consensus at KRW61.5bn
Hansol Chemical is forecast to post operating profit of KRW61.5bn (+14.2% QoQ, +19.9% YoY) on sales of KRW205bn (+9.5% QoQ, +24.5% YoY) for 3Q21, exceeding the consensus estimate of KRW60.1bn. Growth in earnings is expected from: 1) increase in sales of hydrogen peroxide for use in semiconductors and displays; 2) start of sales of QD OLED-use materials; and 3) sales of anode binders for EV batteries and earnings contribution from the subsidiary Tapex.
2021 OP forecast at KRW226bn (+48.8% YoY)
For 4Q21, we expect Hansol Chemical to record operating profit of KRW58.5bn (-4.9% QoQ, +118.2% YoY) on sales of KRW225bn (+ 9.7% QoQ, +41.3% YoY). Expansion of the company's acrylonitrile butadiene (NB) latex production capacity from 20,000 to 80,000 tons should drive notable YoY improvement in overall earnings. Our 4Q21 forecast points toward exceptionally strong earnings, considering that one-off costs including bonus payments are generally booked in the final quarter of the year.
Entry into the market for EV battery-use silicon anode materials
On August 10, Hansol Chemical announced its decision to invest KRW85bn for expansion into silicon-based anode materials for EV batteries. Major client Samsung SDI is preparing to use silicon anode materials in EV batteries from 2H22, and global EV battery makers are expected to follow suit. With the expansion of its product lineup from EV battery-use tapes and anode binders to silicon anode materials, Hansol Chemical should emerge as a full-fledged player in the market for EV battery materials.
Retain BUY for a target price of KRW350,000
We retain our BUY rating on Hansol Chemical for a target price of KRW350,000 in view of: 1) 2021F operating profit of KRW226bn (+48.8% YoY); and 2) investment in EV battery-use silicon anode materials. Our target price is based on 2022F EPS of KRW17,443 and a target PER of 20.2x. Earnings should continue on an uptrend, driven by the company's diversified portfolio of materials for semiconductors, displays, and EV batteries. While we will need to check up on the downturn in LCD TV panel prices and DRAM spot prices on slowing demand for TVs and PCs in developed markets, we believe Hansol Chemical is a comfortable bet for mid/long-term investors.