[Click eStock] "Daehan Yuhwa, PBR Below 0.4... Bottom Zone Opportunity"

Yuanta Securities maintained a buy rating and a target price of 300,000 KRW for Daehan Petrochemical on the 29th, citing it as a low-price buying opportunity.

Daehan Petrochemical recorded sales of 632.7 billion KRW and an operating loss of 35.1 billion KRW in the second quarter of this year. Although the operating loss margin narrowed compared to the same period last year and the previous quarter, the company posted losses for seven consecutive quarters. From February to May this year, a recovery trend was observed, but in June, the decline in naphtha prices exposed the company to inventory losses. By segment, the petrochemical headquarters recorded an operating loss of 36.5 billion KRW, while Korea Air Tech posted an operating profit of 1.4 billion KRW.

The expected operating profit for the third quarter is 6.1 billion KRW, raising expectations for a return to profitability. Researcher Hwang Kyuwon of Yuanta Securities explained, "This is because the utilization rate of facilities is increasing while low-cost raw materials are being used," adding, "The utilization rate of the NCC, a facility that cracks naphtha to produce petrochemical products, rose from 74% in the second quarter to around 85% in the third quarter, indicating improved sales conditions compared to the first half."

He also stated, "The effect of introducing low-cost naphtha has been clear from last month to this month," noting, "Since June, naphtha prices in the Asian region have fallen to levels comparable to Russian export prices." Additionally, the production scale of PE and PP products for secondary battery separators has increased to about 120,000 tons annually.

Researcher Hwang said, "The price-to-book ratio (PBR) of 0.4 times this month has been broken, but past bottoms were 0.25 times in 2008, 0.37 times in 2013, 0.21 times in 2020, and 0.34 times in 2022," adding, "With a significant reduction in ethylene capacity expansion in 2024, there is a high possibility of an industry cycle recovery." He continued, "The global new capacity expansions were 10.11 million tons in 2022, 8.68 million tons in 2023, and 5.2 million tons in 2024," adding, "This is a small figure, about 2.8%, compared to the global total demand of 186 million tons."