[Click eStock] "Kolon Plastics, Supplier-Dominant Market... Stronger Bullishness Than Past Boom Period"

[Asia Economy Reporter Kwon Jaehee] Shinhan Financial Investment maintained its 'Buy' rating and target price of 16,000 KRW for Kolon Plastics on the 7th.

The price of polyoxymethylene (POM) in August reached an all-time high of $2,378 per ton. Despite concerns over demand due to the global economic slowdown and lockdowns in China, tight supply and demand continued, sustaining the strong trend. Meanwhile, the price of methanol, the raw material, continued to decline, resulting in the August POM spread rising 13% compared to the previous month.

The largest share of POM sales is in Europe, where POM supply has been insufficient for several months due to methanol supply disruptions caused by strong natural gas prices. Cumulative Northeast Asian POM imports to Europe from January to May increased by 43% year-on-year, and contract prices for the third quarter were also raised. Despite concerns about a European economic recession, strong demand for high value-added POM is expected to sustain price strength for the time being.

Accordingly, strong performance is expected in the second half of the year due to POM strength. Operating profit for this year is expected to increase by 65% year-on-year to 45.6 billion KRW, with the proportion of high value-added customers expanding to 65%, which is expected to lead to additional profitability improvements. With no global capacity expansions planned over the next two years, a supplier-favorable market due to tight supply and demand is expected to continue.

Additionally, the compound business is also expected to recover. About 80% of sales are for the automotive sector, with approximately 80-85% being domestic volume. Although recent disruptions in new car production have eased, third-quarter performance is expected to be weak due to seasonal off-season effects. However, from the fourth quarter, a significant increase in operating rates and consequent sales recovery are expected to gradually expand profit contributions.

Lee Jinmyung, a researcher at Shinhan Financial Investment, analyzed, "The market is showing stronger conditions than during the boom period of 2016-2018, and a supplier-favorable market with tight supply and demand is expected to continue for the next two years," adding, "Considering the compound turnaround in the second half and normalization of performance next year, further upside is possible."