[Corporate Insight] Hansol Paper to Raise Prices Further in Second Half... Expecting Growth in Eco-Friendly Packaging Materials

Despite concerns about the economic downturn, some companies have posted 'earnings surprises' that far exceed market expectations for the second quarter. A combination of factors such as price increases, exchange rate fluctuations, and reopening (resumption of economic activities) have driven performance even in challenging economic conditions, boosting the stock market. This is good news for investors weary from the prolonged slump. Among them, Asia Economy analyzed Hansol Paper and F&F.

[Asia Economy Reporter Park So-yeon] Hansol Paper is one of the companies that recorded an earnings surprise in the first half of this year. Up to the first half of this year, the company posted higher-than-expected results due to product price increases and the weak Korean won. Profit growth in industrial paper, along with a turnaround in the previously sluggish special paper and printing paper segments, led to improved performance.

Hansol Paper reported consolidated sales of 638.7 billion KRW and operating profit of 56.9 billion KRW in the second quarter of this year. These figures represent increases of 47% and 146.5%, respectively, compared to the same period last year. In the paper segment, industrial paper, represented by copy paper and delivery boxes, led profit growth. Printing paper and special paper, which had been sluggish, also turned profitable. In May, Hansol Paper raised export prices by 10% for POS paper and label paper, which are types of special paper. In June, it followed competitors' price hikes with an additional 10% increase. Label paper prices were raised by another 10% in July. A Hansol Paper official explained, "During the COVID-19 pandemic, performance was strong due to increased delivery volumes, and this year, special paper products such as card receipts, POS paper, label paper, and airplane tickets performed well."

While the core business segment of industrial paper showed solid performance, the previously underperforming special paper and printing paper segments benefited from price increases. In particular, thermal paper, a type of special paper, saw significant price hikes driven by demand recovery following reopening and supply constraints from German companies due to the Russia-Ukraine war, leading to improved results. Park Jong-ryeol, a researcher at Heungkuk Life Insurance, said, "Concerns about sea freight rates are easing due to a peak-out, and freight burdens are expected to decrease in the second half. Additional product price increases are anticipated in the second half." The current business conditions are not expected to deteriorate easily. Park Jong-seon, a researcher at Eugene Investment & Securities, forecasted that Hansol Paper's industrial paper production capacity will expand to 740,000 tons annually by the end of this year. He added, "We plan to focus exports not only domestically but also in Southeast Asia."

Attention should also be paid to Hansol Paper's eco-friendly and functional new materials business. The company is expanding its eco-friendly product lineup, including 'Protego' and 'Terabas.' Protego, an eco-friendly packaging material launched in 2019, combines special treatment and coating technologies that were difficult to achieve with traditional paper materials, forming a coating layer on the paper surface that blocks oxygen and moisture penetration. Due to its high barrier performance, it can replace aluminum vinyl used in snack cookies, medicine packaging, and mask packaging. It is recyclable through paper separation and is over 90% biodegradable, making it an eco-friendly material that can replace aluminum vinyl, which is difficult to recycle.

Terabas, a PE-free (polyethylene-free) product launched the year before last, is paper coated with a water-based coating solution and is used for paper cups and containers. Unlike conventional paper coated with plastic-based PE, it is easy to recycle and naturally decomposes, making it environmentally friendly. Protego began supplying export packaging materials to a domestic mask pack manufacturer in April last year, and Terabas was introduced to Baemin Sanghoe last year. The company also formed a strategic partnership with Ediya Coffee to provide eco-friendly containers. Furthermore, as corporate interest in ESG (environmental, social, and governance) has increased, partnership companies have expanded to include Lotte Confectionery, Amorepacific, and Yuhan Corporation. Although eco-friendly product sales were around 5 billion KRW last year, accounting for a negligible portion of total sales, the expansion of product lines and client companies is likely to establish this segment as a mid- to long-term growth driver. A Hansol Paper official said, "We are strengthening research and development in the eco-friendly field. It will take some more time to contribute significantly to sales, but we are in the stage of expanding product technology and sales through cooperation with major companies."

Meanwhile, Hansol Paper has consistently invested between 40 billion and 80 billion KRW annually in CAPEX over the past five years. Operating cash flow has remained steady between 100 billion and 200 billion KRW. Operating profit over the past five years fluctuated between 60 billion and 120 billion KRW, and sales ranged from 1.5 trillion to 1.9 trillion KRW during the same period. The consensus forecast for Hansol Paper's performance this year is sales of 2.306 trillion KRW and operating profit of 128.8 billion KRW.