Concerns over 1H22 Already Reflected in Share Price
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Revise down TP to KRW320,000 but maintain BUY
We lower our 12m TP to KRW320,000 but maintain BUY for Hansol Chemical. We have revised down 2022E/2023E NP (to attributable to controlling interests) by 9%/15%, in light of: (1) weaker-than-expected 4Q21 earnings; (2) higher costs at the semiconductor materials division due to higher raw material prices; and (3) lower profitability at the NB latex division due to inventory adjustments. However, we believe higher costs for semiconductor materials will likely be passed through to product prices starting in 3Q22, and the fixed cost burden for NB latex should also ease on capacity ramp-up and increased shipments. We see the company’s earnings improving in 2H22 thanks to product price markups as well as increased shipments on rising seasonal demand.
4Q21 OP at KRW35.6bn, below market consensus
Hansol Chemical posted 4Q21 revenue of KRW207.6bn (+30% YoY, +6% QoQ) and OP of KRW35.6bn (+33% YoY, -36% QoQ; 17.1% OPM), with OP missing the market consensus on weaker NB latex profitability amid a decline in shipments. Demand for NB latex came in weaker than expected, as the Malaysia factory of a major client saw logistics disruptions due to the pandemic as well as inventory adjustments. Meanwhile, earnings for precursors, QD materials, and battery materials came in line with expectations.
Earnings to improve in 2H22; Concerns over 1H22 already reflected in share price
For 2022, we estimate revenue of KRW941.5bn (+23% YoY) and OP of KRW220.7bn (+12% YoY). While earnings in 1H22 are likely to be weighed down by higher costs for semiconductor materials (i.e., higher raw material prices) and lower profitability for NB latex (i.e., logistics disruptions and inventory destocking), earnings in 2H22 should improve on cost pass-through and increased shipments. Expectations for the company’s annual earnings are lower, but the company’s growth engines (i.e., QD materials, battery materials, precursors) continue to see shipments increase as their downstream markets grow. We believe concerns over sluggish 1H22 earnings have in part already been reflected in share price as shares have tumbled more than 40% from recent peak.