[Special Stock] Daehan Yuhwa Soars 7% on Expectations of Secondary Battery Business Growth

[Asia Economy Reporter Lee Seon-ae] On the 14th, Daehan Petrochemical's stock price surged sharply. This is interpreted as due to expectations for the growth potential of polymers used in secondary battery separators.

Daehan Petrochemical started the day at 142,500 KRW and surged to 151,000 KRW in the early session. This represents a rapid 7% increase. As of 9:18 AM, it is trading at 149,500 KRW, up 6.79%.

On the same day, Yuanta Securities upgraded Daehan Petrochemical's investment opinion from neutral (hold) to buy and raised the 2023 target price to 260,000 KRW (previously 165,000 KRW). This reflects the entry into an 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.

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 for 1st or 2nd place globally with Celanese. Researcher Hwang Gyu-won of Yuanta Securities said, "Estimated sales are expected to expand from 180.3 billion KRW in 2022 to 225.5 billion KRW in 2023 and 373.6 billion KRW in 2030," adding, "The proportion of total sales will increase from 8% in 2023 to about 13%."

The expected 2023 performance includes sales of 2.9 trillion KRW, operating profit of 90 billion KRW (operating margin 3.1%), and net income attributable to controlling shareholders of 76.7 billion KRW. Operating profit is expected to increase by 230.7 billion KRW 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 237.9 billion KRW in 2024. Researcher Hwang emphasized, "At the end of 2022, the price-to-book ratio (PBR) was around 0.4 times," and added, "It is expected to sufficiently reach the 0.9 times PBR level observed during past petrochemical market cycle recoveries."