[Click eStock] Daehan Yuhwa, Steady Steps in Secondary Battery Growth... Target Price Raised

[Asia Economy Reporter Lee Seon-ae] Yuanta Securities announced on the 14th that it has upgraded its investment rating on Daehan Petrochemical from neutral (hold) to buy and raised the 2023 target price to KRW 260,000 (previously KRW 165,000). This reflects the entry into the ethylene upcycle and the growth value of polymers for separators.

Daehan Petrochemical is a leading pure NCC company ranked 5th domestically, with an ethylene production capacity of 900,000 tons, accounting for 7.4% of the domestic total of 12.17 million tons. The variable that most affects its performance is the ethylene market condition. A downcycle occurred due to oversupply from 2021 to 2022. It is expected to escape the oversupply trap by mid-2023 to 2024. Researcher Hwang Gyu-won of Yuanta Securities stated, "The scale of new capacity additions in 2023 will decrease to below 5 million tons from the recent three-year average of 11 million tons annually," adding, "Global demand is expected to recover by 9 million tons (normal demand 6-7 million tons + demand from easing of China lockdown 1.5 million tons + Ukraine recovery special demand 800,000 tons)."

High-density polyethylene (for NCM batteries) and polypropylene (for LFP batteries) are materials for secondary battery separators. Although the scale is small, they are establishing themselves as growth products. The global market size is expected to grow at an average annual rate of 20% from 300,000 tons in 2022 to 2030. Daehan Petrochemical’s sales volume is also growing from 80,000 tons in 2022 (PE 60,000 tons, PP 20,000 tons), to 100,000-110,000 tons in 2023 (PE 80,000 tons, PP 20,000-30,000 tons), and 160,000 tons in 2025, competing closely with global Celanese for first or second place. Researcher Hwang said, "Estimated sales revenue is expected to expand from KRW 180.3 billion in 2022 to KRW 225.5 billion in 2023 and KRW 373.6 billion in 2030," forecasting that "the proportion of total company sales will increase from 8% in 2023 to around 13%."

The expected performance for 2023 includes sales of KRW 2.9 trillion, operating profit of KRW 90 billion (operating margin 3.1%), and net income attributable to controlling shareholders of KRW 76.7 billion. Operating profit is expected to increase by KRW 230.7 billion compared to the previous year, marking the start of a turnaround to profitability, with profit recovery accelerating toward the second half. It is anticipated to expand to KRW 237.9 billion in 2024. Researcher Hwang emphasized, "At the end of 2022, the price-to-book ratio (PBR) was around 0.4 times," adding, "It is expected to sufficiently reach the PBR level of 0.9 times observed during past petrochemical market cycle recoveries."