[Into the Stocks] Hwasung with Dual Wings of 'Secondary Battery-Semiconductor'... Foreigners' Net Buying Rally

Operating Profit in Q1 Up 242% QoQ
Foreigners Record 12 Consecutive Days of Net Buying
Sales Expected to Reach 800 Billion Won This Year... Nearly Double Last Year

[Asia Economy Reporter Ji Yeon-jin] Hwasung, which holds both of the two keywords 'semiconductors and secondary batteries' that have heated up the domestic stock market in recent years, has been receiving continuous love calls from foreigners since the beginning of this month.

According to the Korea Exchange on the 26th, Hwasung has been a stock that foreigners have net purchased for 12 consecutive trading days from the 10th of this month to the day before. During this period, foreigners bought Hwasung shares worth about 175.2 billion KRW, making it the fourth most net purchased stock. During the same period, the most purchased stock by foreigners was secondary battery parts company L&F (289.9 billion KRW), followed by LG Energy Solution (241.9 billion KRW). Last month, LG Energy Solution announced an operating profit for the first quarter of this year that increased by 242% compared to the previous quarter, attracting buying interest in secondary battery-related stocks. Hwasung also recorded an operating profit of 52.3 billion KRW, an 80% increase compared to the previous year, announced on the 16th. This was an earnings surprise exceeding the market forecast (39.8 billion KRW) by 10 billion KRW.

Hwasung produces chemical material products used across the automotive, steel, semiconductor, construction, and environmental industries, such as refrigerants, secondary battery materials, and semiconductor specialty gases, based on fluorochemical technology. In the first quarter, the company's secondary battery sales amounted to 82 billion KRW, and semiconductor sales were 43.2 billion KRW, increasing by 24% and 12%, respectively. It is expected that demand for semiconductor materials will further increase due to semiconductor industry expansions this year. Additionally, the shortage of diesel inventory in the European region is expected to accelerate the transition to eco-friendly vehicles, which has fueled the foreigners' net purchase rally. Hwasung's sales this year are expected to nearly double to around 800 billion KRW compared to last year.

Moreover, the fact that Hwasung is pushing forward with the construction of a secondary battery material production plant in Poland in partnership with a subsidiary of the global chemical company Orbia has also acted as a positive factor. This plant is expected to supply secondary battery parts from the second half of 2024, sparking expectations for full-scale growth originating from Europe. Since the announcement of the first-quarter results, Hwasung's stock price has surged daily, reaching an intraday high of 27,400 KRW on the 19th, setting a new 52-week high.

Hwasung has been considered an undervalued stock compared to competitors in secondary battery and semiconductor parts. As of the 16th, its price-to-earnings ratio (PER) was 10 times, which was lower than other competitors at the time (17 times for semiconductor parts, 30 times for secondary batteries). Byunghwa Han, a researcher at Eugene Investment & Securities, said, "Following the increase in the operating rate of the electrolyte (LiPF6) plant, a turnaround is expected for the semiconductor specialty gas plant in China, and considering the establishment of a new plant in Europe, we are raising Hwasung's earnings estimates," adding, "The upward revision of earnings estimates has increased valuation attractiveness." Yangjae Kim, a researcher at Daol Investment & Securities, raised the target price for Hwasung to 40,000 KRW and maintained a strong buy recommendation.