[Click eStock] Kumho Petrochemical, Still High Profitability and Dividend Appeal

[Asia Economy Reporter Lee Seon-ae] Shin Young Securities stated on the 17th that Kumho Petrochemical is undervalued with a price-to-earnings ratio (PER) of 4.4 times for next year, maintaining a buy rating. However, due to interest rate hikes, the price-to-book ratio (PBR) was adjusted from 2.3 times to 2.1 times, lowering the target price to 380,000 KRW.

Researcher Lee Ji-yeon of Shin Young Securities explained, "Considering the separate basis dividend payout ratio suggested at 20-25%, the year-end dividend would reach 12,000 KRW based on the 20% standard, resulting in an attractive dividend yield of 5.7%. Additionally, the BD price stabilization due to the expansion of Asia NCC, the recovery of SBR/BR profitability driven by tire demand recovery, and the steady demand for NB latex will sustain high profit levels."

Operating profit for the third quarter is expected to be 596 billion KRW, a 21% decrease from the previous quarter but a 179% increase compared to the same period last year.

Although the third quarter shows a decline compared to the exceptionally high second quarter results, the recent drop in raw BD prices is expected to cause synthetic rubber spreads to rise again. The recovery in replacement tire demand is also positive for improving the profitability of SBR/BR, which has a high proportion of BD raw materials. NB latex exports in July fell about 20% compared to the previous month, attributed to a temporary impact from Southeast Asia lockdowns. However, due to continued strong demand for medical gloves, export volumes are expected to recover. Furthermore, Kumho Petrochemical is expected to complete a 70,000-ton expansion of NB latex production in November, reaching a total production capacity of 710,000 tons. Shintomo and Nantex are also planning expansions of around 60,000 to 70,000 tons each by the end of this year, but considering an annual demand increase of 300,000 tons, the supply volume can be sufficiently absorbed.