[Click eStock] Kolon ENP Faces Inevitable Earnings Slowdown Due to Industry Conditions... Target Price Down

Shinhan Investment Corp Research Report
Closing Price on 22nd, 5,620 KRW

Shinhan Investment Corp. lowered the target price for Kolon ENP from 10,000 won to 8,400 won on the 25th, citing inevitable earnings slowdown due to industry uncertainty. The investment rating was maintained at 'Buy.' The closing price on the 22nd was 5,620 won.

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Lee Jin-myung, a researcher at Shinhan Investment Corp., stated in a report released that day, "The PER (price-to-earnings ratio) has fallen to 8 times due to a sharp decline in industry investment sentiment," adding, "However, considering the strengthened fundamentals and normalization of compound earnings compared to past boom periods, the upside remains valid."

Shinhan Investment Corp. expects Kolon ENP to maintain an annual earnings growth trend due to solid demand and global top-tier competitiveness. The researcher explained, "In the polyoxymethylene (POM) business, profitability is expected to improve through the expansion of high value-added products (medical POM), and in the compound segment, growth potential will be secured through the expansion of eco-friendly products," adding, "It is expected to show differentiated performance during the period of increased industry uncertainty, which could lead to a stock price revaluation."

In the third quarter, sales increased by 2% year-on-year to 122.8 billion won, and operating profit rose by 2% to 10 billion won during the same period. Operating profit for the fourth quarter is forecasted at 9.5 billion won due to scheduled maintenance of POM and a decrease in compound sales volume.

The researcher forecasted, "Most companies in the chemical industry will inevitably experience earnings slowdown this year due to the downcycle impact," but added, "However, this company is expected to achieve earnings growth not only this year but also next year."

He also noted, "With high entry barriers and minimal impact from oversupply originating from China, the POM market is expected to achieve stable earnings through strong global competitiveness," and "As domestic automobile production increases, operational optimization will gradually increase the profit contribution of the compound segment."