Kolon Industries price target cut from 110,000 won to 60,000 won; Buy rating maintained — Hana Securities

[Financial News] Kolon Industries’ third-quarter operating profit came in 18% below market expectations, prompting Hana Securities to cut its price target from 110,000 won to 60,000 won. Lower profitability resulting from higher raw material prices and a falling exchange rate was reflected in the results, leading to downward revisions to earnings forecasts for this year and next. The brokerage nevertheless maintained its Buy rating.
On the 12th, Hana Securities maintained its Buy rating on Kolon Industries and cut its price target by 45.5%, from 110,000 won to 60,000 won.
Yoon Jae-sung, an analyst at Hana Securities, cited lower earnings estimates, a decline in valuation multiples for competitors and a decrease in the value of investment assets as reasons for the price-target revision. The brokerage cut its operating profit forecast for this year by 19.0%, from 290.4 billion won to 235.3 billion won, and its forecast for next year by 15.2%, from 307.5 billion won to 260.7 billion won.
Kolon Industries’ consolidated operating profit for the third quarter was 40.2 billion won, down 58.1% from the previous quarter. That was 18.3% below the market consensus of 49.2 billion won. Revenue over the same period fell 3.8% quarter on quarter to 1.2747 trillion won.
Higher raw material prices and a falling exchange rate were cited as the main reasons for the decline in profitability from the previous quarter. Analysts said profitability deteriorated as higher costs were reflected with a lag. Operating profit in the chemicals segment fell 26.9% quarter on quarter to 51 billion won. The industrial materials segment swung to an operating loss of 4.8 billion won. Aramid losses widened as prices for PPD and TPC, its raw materials, rose despite increased production and sales. Profitability also weakened for PET tire cord and polyoxymethylene (POM) amid cost pressures.
Hana Securities forecast fourth-quarter operating profit of 38.5 billion won, down 4.3% from the previous quarter. The fashion segment is expected to return to profitability as it enters its peak season. However, the brokerage said profitability would deteriorate in the chemicals segment due to a reverse-lag effect from falling oil prices, product selling prices and exchange rates, and in the industrial materials segment due to continued cost pressures. It forecast chemicals-segment operating profit of 43.6 billion won, down 14.5% quarter on quarter, and an operating loss of 5.5 billion won in the industrial materials segment.
The brokerage expects increased production of high-value-added materials to help improve earnings next year. CPI film production facilities are currently running at full capacity, and the brokerage expects the segment’s contribution to profit to grow as shipments increase. At Gimcheon Plant No. 2, completed in June last year with an investment of 34 billion won, the company is increasing mPPO production.
Hana Securities expects the new process to reach full operation early next year, following a stabilization period. It also cited an improved aramid product mix and the relocation of PET tire-cord production facilities to Vietnam as factors that could boost profitability.
Hana Securities forecast Kolon Industries’ operating profit next year at 260.7 billion won, 10.8% above its forecast for this year. However, it said that in the short term, the lag in cost adjustments following lower oil prices could put additional pressure on earnings.

[email protected] Kim Mi-hee Reporter