Petrochemical Stocks That Smiled Before Earnings

Ahead of Q2 Earnings Announcement, 'Solid Performance' Prevails... Consecutive Increases

[Asia Economy Reporter Oh Ju-yeon] Major petrochemical companies such as Kumho Petrochemical, SKC, and Lotte Chemical saw their stock prices rise one after another ahead of their Q2 earnings announcements on the 7th. Overall, operating profits are expected to decline compared to the previous year due to the novel coronavirus infection (COVID-19), but it is widely believed that sales increased in the hygiene products sector, where demand surged after COVID-19, allowing these companies to perform relatively well despite the sluggish market conditions.

SKC's stock price rose 11.68% over the past week since the 3rd. The closing price on the 3rd was 77,000 won, but during trading on that day, it rose to 86,000 won, marking a 52-week high. Considering that it had fallen to 27,700 won intraday on March 19, this represents nearly a threefold surge. According to financial information provider FnGuide, SKC's operating profit for Q2 this year is forecasted to be 47.1 billion won, a 2.3% decrease compared to the same period last year. This decline is attributed to a contraction in the propylene oxide (PO) market due to reduced polyurethane demand caused by COVID-19, which negatively impacted the chemical division's performance. However, the operating profit margin remains solid due to an improved product portfolio. The operating profit margin is expected to improve to 6.8% this year from around 6.1% last year. Notably, sales in the semiconductor materials division are projected to increase by more than 20% next year compared to this year, and SKC has selected copper foil, a key material for electric vehicle batteries, as a new growth engine. The company plans to sequentially build copper foil plants by the year after next, solidifying its industry-leading position. These factors are considered key investment points. On this day, SKC announced earnings that exceeded market consensus, with Q2 operating profit at 49.9 billion won, a 3.5% increase year-on-year.

Kumho Petrochemical is also expected to see its Q2 operating profit decrease by 22.3% year-on-year to 107.9 billion won, but its stock price rose. On this day, Kumho Petrochemical's stock price rose 4.55% from the previous trading day to 92,000 won, marking a 12.06% increase since the 3rd when it was 82,100 won. Securities firms analyzed that the performance would improve more than initially feared and that there could be a Q3 earnings surprise. The Q3 operating profit for Kumho Petrochemical, estimated by more than three securities firms, is 123.1 billion won, a 79.3% increase year-on-year, the most significant growth among petrochemical companies.

Lotte Chemical, whose stock price has halved since early last year, also saw a slight increase ahead of its earnings announcement. Lotte Chemical's Q2 operating profit is estimated at 99.1 billion won, a 71.4% decrease year-on-year. It appears that the negative impact from reduced demand due to COVID-19 outweighed the benefits from lower raw material prices.

A securities industry official commented, "If Chinese companies return to normal operations in Q3, it will be a burden for domestic companies," adding, "Since this sector is far from being a leading sector driving the stock market in the second half, times when the market rebounds could actually be selling opportunities."