[Click eStock] Kumho Petrochemical, Global No.1 Value 'Target Market Cap 10 Trillion'

[Asia Economy Reporter Lee Seon-ae] Hana Financial Investment recommended actively buying Kumho Petrochemical, raising the target price by 22% from 270,000 KRW to 330,000 KRW on the 21st, stating that Kumho Petrochemical's value should be re-evaluated.

Yoon Jae-sung, a researcher at Hana Financial Investment, said, "NBL global No. 3 Taiwan Nantex had a PER of 10 times and EV/EBITDA of 5.8 times as of 2021, whereas No. 1 Kumho Petrochemical has a PER of 5 times and EV/EBITDA of 2.8 times, so just applying the same valuation creates about twice the upside potential." He added, "With the same valuation, the market capitalization should reach 7.5 trillion KRW, and if a 50% premium is applied to Kumho Petrochemical's rubber business, the market cap could reach 10 trillion KRW."

The background for the need for value re-evaluation includes the resolution of uncertainties over the reduction of Asiana Airlines shares, which had been a drag on Kumho Petrochemical's stock price, and the acquisition of Kumho Resort. In particular, the acquisition price of Kumho Resort is understood to be less than 300 billion KRW, lower than the initially expected 500 billion KRW. Although the acquisition decision is somewhat disappointing, considering the estimated net cash of 7.5 trillion KRW and a debt ratio of 50% in 2021, it is judged not to be a financially burdensome deal.

Strong earnings momentum is also expected. Due to the favorable performance of NBL, operating profit in 2021 is expected to reach a record high of 1.44 trillion KRW (YoY +93%).

Operating profit during the past boom in 2011 was 840 billion KRW, but this year it exceeds that by 72%. Also, net borrowings were 1.7 trillion KRW at that time, but this year it will be converted to net cash of 7.5 trillion KRW. Considering recent expansions into new businesses related to secondary batteries such as carbon nanotubes (CNT), a premium is also necessary.

Researcher Yoon said, "In 2011, SBR/BR was the driving force of the boom, but now it is NBL," adding, "Considering recent improvements in tire demand and increased electric vehicle sales, after NBL (640,000 tons), SBR/BR (600,000 tons) is also expected to increase its profit contribution, so the strength of earnings will be strong and the duration will be longer."