[Click eStock] "KCC, Silicon Performance Turnaround... Target Price Maintained"

Silicone Performance Expected to Return to Profit in Q2 2024
China Organic Silicone Prices Up 16% Since Early Year
Organic Silicone Companies' Profitability to Turn Around

Hana Securities analyzed on the 6th that KCC's stock price is absolutely undervalued considering the turnaround in its silicon performance and price-to-book ratio (PBR). They maintained a 'Buy' investment rating and a target price of 350,000 KRW. KCC's closing price on the 5th was 279,000 KRW.

Researchers Jaesung Yoon and Hongju Shin of Hana Securities stated, "The negative impact from the sharp decline in metal/organic silicon prices that lasted for two years since early 2022 finally ended around 2023," adding, "The distorted cost contracts established at that time are also gradually being revised, entering a phase where metal silicon input costs stabilize by 2025." Silicon performance is expected to reduce losses in the first quarter of 2024 and turn profitable in the second quarter. The two researchers added, "Considering the turnaround in silicon performance along with treasury stock and investment securities held, the current stock price at a PBR of 0.4 times is absolutely undervalued."

The price of organic silicon (DMC) in China rose about 30% from the bottom of approximately 13,000 CNY/ton at the end of July last year to 16,550 CNY/ton currently. In particular, the price increase rate compared to the beginning of the year is 16%. The recent recovery in the industry is becoming more evident. Researchers Jaesung Yoon and Hongju Shin explained, "Large-scale cancellations of Chinese organic silicon expansions in 2023 due to profitability deterioration, a drop in organic silicon inventory to about a six-month low, and expectations of demand improvement from various real estate stimulus measures such as regulatory easing have led to movements to secure inventory."

The full cost for Chinese organic silicon manufacturers is approximately 13,000 to 15,000 CNY/ton. Hoshine Silicon, which directly procures raw material metal silicon, has the lowest cost. Therefore, it is estimated that 13,000 CNY/ton was the price supporting the bottom of the market. Currently, most organic silicon companies are in a situation where profitability can turn around.