KB Securities cuts Kumho Petrochemical Co., Ltd. target price from 180,000 won to 124,000 won

[Financial News] Kumho Petrochemical Co., Ltd. is forecast to post a 48% increase in annual operating profit from last year despite swinging to a loss in the third quarter this year. However, demand for advance purchases driven by supply shortages in the first half led to inventory drawdowns in the second half, weakening profitability. The cost burden of power generation also grew, prompting downward revisions to earnings forecasts and the target price.
On the 9th, KB Securities maintained its “Buy” rating on Kumho Petrochemical Co., Ltd. but cut its target price by 31.1%, from 180,000 won to 124,000 won. KB Securities research analyst Jeon Woo-je cited the faster-than-expected easing of supply shortages caused by the war in the Middle East and higher power-generation costs due to rising coal prices as reasons for the cut. The firm maintained its outlook for long-term earnings improvement, driven by a shortage of natural rubber and a larger share of high-value-added synthetic rubber products for electric vehicle tires.
KB Securities forecast consolidated operating profit of 403.1 billion won for Kumho Petrochemical Co., Ltd. this year. That would be a 48.3% increase from 271.8 billion won last year, but 28.5% below the previous estimate of 564 billion won.
KB Securities also cut its operating profit forecast for next year by 36.1%, from 619 billion won to 395.7 billion won. It estimated revenue of 7.6403 trillion won this year and 7.8796 trillion won next year.
The downward revision to the earnings outlook reflects worsening profitability in the second half. Kumho Petrochemical Co., Ltd. recorded consolidated revenue of 1.9215 trillion won and an operating loss of 20.8 billion won in the third quarter. Revenue rose 16.9% from the same period a year earlier, but operating profit swung to a loss. Operating profit in the synthetic rubber segment fell to 2.3 billion won from 189.8 billion won in the previous quarter, while the synthetic resins and phenol derivatives segments posted operating losses of 13.9 billion won and 62.5 billion won, respectively. Narrower spreads resulting from inventories of high-cost raw materials, along with weak demand, hurt profitability.
KB Securities attributed the weak second-half results to a reversal of advance purchasing prompted by supply shortages in the first half. After customers concentrated their advance purchases in March–May, inventory drawdowns continued from June to October, slowing demand for new purchases, the firm said. It forecast that operating profit would return to positive territory in the fourth quarter, reaching 25.5 billion won.

[email protected] Kim Mi-hee Reporter