[Click eStock] “Hyosung TNC, Rising Rally on Favorable Spandex Market and Earnings”

Early March Spandex Prices in China Rise 68% Compared to Late Last Year

[Asia Economy Reporter Gong Byung-sun] Although the demand for spandex, the main product of Hyosung TNC, continues, supply is not increasing, leading to predictions that prices will rise further. Although the price of butanediol (BDO), the raw material for spandex, has also increased, the rise in product prices is greater, which is expected to have a positive impact on Hyosung TNC's stock price. Accordingly, Daishin Securities has raised the target price of Hyosung TNC from the previous 500,000 won to 700,000 won, maintaining a 'buy' investment rating.

With steady demand for spandex continuing, meaningful supply increases are not expected until the end of the year, so price increases are anticipated to continue. Spandex is a synthetic fiber made from polyurethane fiber elastic yarn, used to make underwear, swimwear, and sportswear. Despite demand, supply has not increased, and as of early March, the price of spandex in China surged 68% compared to the end of last year to $10 per kilogram (approximately 11,400 won).

The price of products made from spandex is also expected to rise significantly. This increase offsets the 156% rise in BDO prices compared to the end of last year. Furthermore, BDO prices are expected to weaken in the second quarter. Sangwon Han, a researcher at Daishin Securities, said, "Considering the spread (the difference between product price and raw material price), profits are expected to increase by about 80 billion won compared to the previous quarter," adding, "Our estimate is a 47.5 billion won increase compared to the previous quarter, so it remains a conservative level."

Reflecting this, Daishin Securities raised the target price to 700,000 won. Despite the stock price increase, the market capitalization remains about 1.85 trillion won, which is only four times the price-to-earnings ratio (PER). Considering that the global second-largest spandex company, China's Huaron, has a market capitalization of 10 trillion won, Hyosung TNC's stock price is considered undervalued.

Researcher Han said, "Hyosung TNC's operating profit for the first quarter of this year is expected to be 180.1 billion won, exceeding the market expectation of 146.4 billion won," and added, "This strong performance is due to the spandex and polytetramethylene ether glycol (PTMG) divisions' operating profit of 172.3 billion won, a 38% increase from the previous quarter, with the operating margin also rising by 3 percentage points to 28.6% compared to the previous quarter."