[Click eStock] "Hyosung Chemical, Leading Beneficiary of Strong PP Market... Target Price Raised"

[Asia Economy Reporter Oh Ju-yeon] Kiwoom Securities introduced Hyosung Chemical as having a polypropylene (PP) production capacity of 900,000 tons by the end of this year, ranking second domestically. They diagnosed that the current PP margin rate exceeds the super cycle periods of 2010-2011 and 2016-2017. Considering performance improvement next year, they raised the target stock price from 180,000 won to 200,000 won.

According to Kiwoom Securities on the 2nd, Hyosung Chemical's operating profit next year is expected to increase by 161.4% compared to this year, reaching 184.2 billion won.

Until the first half of next year, the Vietnam PP-Alone facility (300,000 tons) is expected to maintain a deficit trend due to external propylene imports. However, from July, with the operation of PDH 600,000 tons, PP 300,000 tons, and Cavern, the effects of raw material integration and volume increase are expected to fully materialize. Additionally, as the spread of COVID-19 subsides, demand in the industrial pipe markets of advanced countries such as Europe, the United States, and Australia is increasing, and sales of specialized products with high premiums and margin rates are expected to expand.

Furthermore, the film and optical sectors are maintaining solid margin rates due to the recovery of the upstream industry conditions, and NF3 margins are expected to improve next year due to expansion restrictions. Along with this, large-scale projects will be completed, and the debt ratio is expected to gradually and rapidly decrease starting next year.

Researcher Lee Dong-wook of Kiwoom Securities stated, "Hyosung Chemical's PP production capacity as of the end of this year is 900,000 tons, ranking second domestically after Lotte Chemical," adding, "It is currently benefiting from the recent strong PP market conditions."

As of the 30th of last month, the PP spread based on integrated naphtha was $706 per ton, surpassing $700 per ton for the first time since early June 2015. In particular, the current PP variable margin rate exceeds 40%, surpassing the margin rates during the super cycle periods of 2010-2011 and 2016-2017.

Researcher Lee analyzed, "The major market, China, is reflecting tight supply and demand, resulting in inventory reductions, and other Asian regions such as Thailand, Indonesia, and India are also experiencing supply shortages." He added, "Plant shutdowns are occurring among domestic companies, which are major PP exporters, and rising prices of raw material propylene and transportation costs are simultaneously pushing up product prices."