Earnings to Begin Year Weak and Then End Strong
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Maintain BUY but cut target price to KRW390,000
We maintain BUY on Hansol Chemical but cut our 12m TP to KRW390,000, as we revise down 2022E/2023E NP (attributable to controlling interests) by 15%/16% to reflect increases in feedstock prices for hydrogen peroxide and narrowing NB-Latex margins resulting from falling ASP and logistics issues. In 1H22, however, the company should be able to reflect the rise in feedstock cost in the price of hydrogen peroxide while offsetting NB-Latex ASP via capacity increases. As a result, earnings should bottom out in 1H22 and begin to improve in 2H22 on strong seasonal demand.
4Q21 forecast: OP at KRW38.3bn (+43% YoY)
We forecast 4Q21 revenue at KRW208.4bn (+31% YoY, +6% QoQ) and OP at KRW38.3bn (+43% YoY, -32% QoQ; 18.4% OPM); our estimates are in line with the recently lowered market consensus. Earnings for businesses (e.g., Precursor, QD Material, Battery Material) should be in line with our previous estimates with the exception of Hydrogen Peroxide (increase in feedstock prices) and NB-Latex (drop in ASP). OP should continue improving YoY, though we note QoQ weakness caused by year-end bonus payments booked in 4Q21. We forecast 1Q22 OP at KRW53.1bn (+2% YoY), with growth limited by increasing costs burdens at Hydrogen Peroxide and NB-Latex.
Earnings concerns priced in; earnings to begin year weak and then end strong
Hansol Chemical stock is down more than 30% from its peak (KRW372,500 on Sep 27), suggesting earnings concerns stemming from rising feedstock prices have been sufficiently priced in; consensus has also been sufficiently revised down. We expect rising feedstock prices and logistics issues to weigh on earnings growth in 1H22 (flat YoY) until ASP rises to absorb rising costs and shipment increases induce YoY improvements in 2H22. We believe the company’s long-term growth momentum should remain intact, as cornerstone businesses (i.e., Precursor, QD Material, Battery Material) should see shipments increase on the back of growing downstream demand and the launch of silicon anode material production in 2023.