Kumho Petrochemical Target Price Cut 19.5% After Swinging to a Loss [Click e-Stock]

IBK Investment & Securities Maintains Its "Buy" Rating

IBK Investment & Securities said on November 9 that it was lowering its target price for Kumho Petrochemical, a petrochemical company that makes synthetic rubber and phenol derivatives, by 19.5%, from 190,000 won to 153,000 won. The company’s third-quarter operating profit turned into a loss, falling short of market expectations, but the brokerage maintained its “Buy” rating. It said the shares had 65.4% upside from the current price of 92,500 won.

Kumho Petrochemical posted an operating loss of 20.8 billion won in the third quarter, turning to a loss from a profit in both the same period last year and the previous quarter. The result was below market expectations of 64.2 billion won in operating profit. Revenue fell 15.3% from the previous quarter to 1.9215 trillion won, and the operating margin was -1.1%.

“The result was driven by the combination of demand caution and price competition, on top of the reverse-lagging effect of high-cost raw materials and product inventories—that is, selling materials and inventory bought at high prices after market prices have fallen,” said Lee Dongwook, an analyst at IBK Investment & Securities.

Kumho Petrochemical's Yeosu Rubber Plant. Kumho Petrochemical

Operating profit from synthetic rubber fell to 2.3 billion won from 189.8 billion won in the previous quarter. Spreads—the difference between raw material and product prices—narrowed for major products, while NB latex returned to a loss as price competition intensified. “EPDM/TPV and energy remained profitable, but it was not enough to offset the decline in profitability of the core business,” the analyst said.

Over the medium term, the competitiveness of high-value-added synthetic rubber and financial stability are expected to underpin the investment appeal, Lee said. At the end of the third quarter, cash and cash equivalents of 721 billion won exceeded borrowings of 697.4 billion won, giving the company a net cash position of about 23.6 billion won. Its debt-to-equity ratio also declined to 32.1% from 35.7% at the end of last year.

“The company has a foundation that allows it to continue investing while returning capital to shareholders despite the weak industry conditions,” Lee said. “If the easing of the burden from high-cost inventories leads to a recovery in earnings, and if expanded sales of high-value-added products and continuity in shareholder return policies are confirmed, confidence in its earnings and corporate value should also improve.”

This content was produced with the assistance of AI translation services.