[Click eStock] "Kolon Industries, Earnings Momentum Weakens... Target Price Down"

[Asia Economy Reporter Son Sunhee] Yuanta Securities announced on the 11th that it maintains a 'Buy' rating on Kolon Industries but has lowered the target price from the previous 95,000 KRW to 77,000 KRW.

Kolon Industries' main business is the business materials division that produces and sells 'tire cords,' reinforcing materials that help maintain the tire's original shape. In the first quarter of this year, the expansion facility for 19,000 tons (t) of tire cords in Vietnam began sales, and expansion effects are expected for the first time in five years. Accordingly, the total tire cord production capacity will increase from 96,000 t to 115,000 t. In the upcoming 3rd to 4th quarters, the aramid 7,500 t facility, which is a tire reinforcement material and a coating material for ultra-high-speed communication network cables, will be completed and start production. The expected effects from operating these two facilities are estimated at 280 billion KRW in sales and 53 billion KRW in operating profit.

However, due to a decrease in tire cord demand this year, related profit margins are expected to fall by 2 to 3 percentage points. Researcher Hwang Kyuwon of Yuanta Securities explained, "The global PET tire cord demand size is about 660,000 t, and after zero growth last year, a decrease of around 1% is feared this year," adding, "This is because replacement tire demand in Europe and the United States is stagnating." Furthermore, he added, "Global new expansion volumes of 31,000 t in 2023 and 25,000 t in 2024?2025 are pending," noting, "Considering that there was no global new expansion in the past three years, the pressure for expansion is increasing."

Yuanta Securities reflected this profit margin decline and lowered the target price to 77,000 KRW. However, Researcher Hwang said, "The recent stock price level of around 43,000 KRW excessively reflects concerns about fundamental deterioration, so we maintain the 'Buy' rating," adding, "It seems that time is needed for stock price recovery."