[Click eStock] "Kumho Petrochemical, No Loss of Glove Orders Despite COVID-19 Spread in US and Europe Amid Vaccine Development Expansion"

[Asia Economy Reporter Oh Ju-yeon] Kiwoom Securities analyzed on the 17th that although there may be views that the demand for NB latex could decrease due to the development of a novel coronavirus (COVID-19) vaccine, the export price of domestic NB latex in October was $1,342 per ton, an increase of 35.3% compared to the same period last year.

Furthermore, despite the rise in raw material prices, the NB latex margin rate has sharply improved due to a surge in front-end demand, and it was emphasized that despite the expansion of vaccine development, there has been no order loss from front-end glove companies due to the spread of COVID-19 in the US and Europe.

Accordingly, the investment opinion of 'Buy' and the target stock price of 210,000 won, presented on the 9th, were maintained respectively.

Researcher Lee Dong-wook of Kiwoom Securities said, "The stock price of Kumho Petrochemical has recently been adjusted due to the expected decrease in front-end glove demand caused by vaccine development expansion, the sharp rise in raw material prices such as butadiene, and the expected earnings decline in the energy sector due to major plant regular maintenance and SMP downward stabilization in the fourth quarter," adding, "However, it is still undervalued compared to the actual fundamentals."

Researcher Lee explained, "The export price of domestic NB latex in October this year was $1,342 per ton, up 23.1% from the previous month and 35.3% from the same period last year," and added, "Even considering the rise in AN/BD input prices and other fixed, variable, and conversion costs, if the company operated the NB latex plant at 100% capacity, it is estimated that only in October, NB latex recorded the highest margin rate in the company's history (similar to the level of customer companies). If the cracker shutdown period of domestic competitors is prolonged, NB latex margins are expected to improve further in November and December."

Regarding the sharp rise in the price of butadiene, a major raw material for Kumho Petrochemical's synthetic rubber and resin, he predicted that although it is a burden on manufacturing costs, since the company owns 237,000 tons of butadiene extraction facilities in Yeosu and Ulsan, some margin improvement effects from butadiene manufacturing are expected in the fourth quarter of this year.

He also refuted the forecast that NB latex demand will decrease next year due to vaccine development news.

Researcher Lee said, "Considering the recent spread of COVID-19 infections in the US and Europe, the main export countries of Malaysian and Thai companies, the forecast that nitrile glove demand will decrease next year does not seem reasonable," adding, "Orders from Thai and Malaysian glove companies such as Top Glove, Hartalega, Kossan, Supermax, and Sri-Trang appear to have no changes yet."

He continued, "The company plans to expand its super-gap through an increase of 130,000 tons of NB latex this year and next year," and forecasted, "While the expansion of general-purpose rubbers such as SBR/BR is limited in the future, a tight supply and demand situation is expected next year due to the conversion of synthetic rubber companies' facilities, including the company, to NB latex."