[Click eStock] "Hyosung Chemical, Cost Burden ↓ Growth Expectations ↑"

US Propane Production Expansion Eases Cost Burden
Vietnam Market Recovery... Next Year's Performance Improvement Assured

[Asia Economy Reporter Minwoo Lee] Hyosung Chemical is expected to see a gradual easing of cost burdens despite short-term performance setbacks. It is analyzed that growth in 2022 is assured through the normalization of performance in Vietnam.

On the 8th, Shinhan Financial Investment maintained its target price of 470,000 KRW and a 'Buy' rating for Hyosung Chemical based on this background. The closing price the previous day was 344,500 KRW.

Hyosung Chemical's Q4 performance is expected to decline compared to the previous quarter due to cost burdens from strong propane (LPG) prices and scheduled maintenance in Vietnam. Shinhan Financial Investment projected sales of 735.7 billion KRW and operating profit of 31.1 billion KRW. Although both figures represent over a 50% increase compared to the same period last year, operating profit is expected to decrease by about 5.5% compared to the previous quarter. This is because Saudi Arabian propane prices increased by about 29% quarter-on-quarter due to strong international oil prices, intensifying cost burdens. The polypropylene (PP) and dehydrogenation (DH) businesses in Vietnam are expected to continue running at a loss due to scheduled maintenance of DH facilities.

However, these burdens are analyzed to ease over time. LPG prices are expected to weaken due to increased propane production in the U.S. and downward stabilization of oil prices. Propane exports are anticipated to further decline with the expansion of U.S. liquefied natural gas (LNG) fractionation facilities (NGL). The Saudi propane contract price in December was $795 per ton, down 9% from the previous month. Considering U.S. propane prices, there is a high possibility of further decline.

Normalization of Vietnam PP and expansion of nitrogen trifluoride (NF3) production also ensure growth next year. Shinhan Financial Investment forecasts Hyosung Chemical's operating profit next year to be 315.4 billion KRW, a 61% increase compared to this year's estimate. Jinmyung Lee, a senior researcher at Shinhan Financial Investment, explained, "Vietnam's performance will see sales increase by 114% year-on-year due to higher sales volume and an increased premium ratio, turning operating losses into profits. Domestic PP and DH operations are expected to maintain solid profitability due to the recovery of high-value-added PP (for pipes) sales, which have higher profitability than legal capacity, amid global infrastructure investment expansion, along with cost reductions."