[Click eStock] “Kolon Industries, Expanding New Growth Engines”

Kiwoom Securities "Kolon Industries Target Price Raised from 115,000 KRW to 130,000 KRW"

[Asia Economy Reporter Gong Byung-sun] Kolon Industries (Kolon Industries) appears to be preparing to expand its hydrogen material-related facilities. Securities firms predict that the effect of aramid expansion will gradually be reflected in the market capitalization.

On the 15th, Kiwoom Securities estimated that Kolon Industries plans to expand its hydrogen material-related facilities. This expansion seems to be in preparation for the increase in hydrogen vehicle volume, including the new Hyundai Nexo model to be released in 2023. In addition, it plans to gradually increase suppliers not only in domestic and Chinese companies but also in overseas regions such as Europe.

Kiwoom Securities forecasted that Kolon Industries' hydrogen material-related sales of about 30 billion KRW this year will reach 60 billion KRW next year and 100 billion KRW the year after. It is also evaluated that price competitiveness has been secured through the internalization of polymer electrolyte membranes (PEM) and process efficiency improvements. Kolon Industries is also reportedly considering expanding membrane electrode assemblies (MEA). MEA accounts for 40% of the cost of the electricity generation device in hydrogen fuel cells.

The effect of aramid expansion is expected to be gradually reflected. Kolon Industries plans to expand its aramid production capacity from 7,500 tons to 15,000 tons by the third quarter of 2023 to proactively respond to the increasing demand for 5G and electric vehicle tires. Aramid sales are also expected to increase from about 190 billion KRW to 400 billion KRW after the expansion. Furthermore, due to domestic chemical companies' plans to build aramid raw material plants, diversification of raw material procurement is expected to impact performance in the mid-term.

Lee Dong-wook, a researcher at Kiwoom Securities, explained, "Considering the profit margins of competing aramid companies, even conservatively, the operating value of Kolon Industries' aramid business after expansion is about 1.2 trillion KRW," adding, "This will be gradually reflected in the market capitalization this year and next year."

Accordingly, Kiwoom Securities maintained its 'Buy' investment opinion on Kolon Industries. The target price was raised from the previous 115,000 KRW to 130,000 KRW. The closing price on the previous day was 97,800 KRW.