KPX Fine Chemical ( KS)

Transcription

1 Company Report KPX Fine Chemical (2585 KS) BUY (M) / TP: 55, (M) Sung-Ho park sungho.park@tongyang.co.kr Kyu-won Hwang kyuwon.hwang@ tongyang.co.kr May 25, 212 KOREA Chemical Share price (won, May 24) 33,25 Paid-in capital (Wbn) 19 Market cap (Wbn) 126 BPS (won) 35,274 Net debt to equity (%) 15.2 Shares outstanding 3,8, Avg daily T/O (2M, Wbn) 1 Avg daily vol (2M, shrs) 17,19 52-week high (won) 41,9 52-week low (won) 15,9 Foreign ownership (%) 1.9 Major shareholders (%) Yang Kyu-mo & others 5.7 TDI prices rising, utilization at 1% Global TDI prices rising TDI prices (based on Hwadong, China) have risen from US$2,84/tonne in Nov 211 to US$3,153/tonne in Jan 212, US$3,333/tonne in March, and US$3,61/tonne in May. Global TDI leaders boosting ASPs The world s top TDI makers Bayer (production capacity of 61, tpa) and BASF (56, tpa) reduced output to boost ASPs. Bayer maintained utilization rates at new plants in China below 5% and decided to stop production at German plants for six weeks from mid-april. BASF also decided to suspend production at German and Korean plants over April~May. KPX Fine Chem at 1% utilization since mid-april KPX Fine Chem has maintained utilization at 1% since mid-april, with TDI spread staying above breakeven. As a result, it should go intto the black in 2Q. Stock performance (%) 1M 3M 12M Absolute (15.5) Relative (4.) Abs (US$) (22.7) (won) (%) 8, 12 7, 1 6, 8 5, 4, 6 3, 4 2, 1, KPXFINECHEMICAL(LHS) Rel. to KOSPI(RHS) 2 May 21 May 211 May 212 Source: Datastream Forecasts and valuations (Wbn) FY ends Dec E 213E 214E Sales Chg (% y-y) Reported OP Adjusted OP* NP, CI EPS, CI (won) 7, ,813. 5, ,77.8 3,126.3 Chg (% y-y) P/E (x) P/B (x) EV/EBITDA (x) ROA (%) ROE (%) Note: * Adjusted OP = reported OP (K-IFRS) other operating profit/loss. CI = controlling interest TONGYANG Research

2 KPX Fine Chemical (2585 KS) To turn profit on rising TDI prices, 1% utilization Global TDI prices rising in May World s top TDI makers cutting output Bayer strongly determined to raise ASP TDI prices (based on prices in Hwadong, China) have climbed from US$2,84/tonne in Nov 211 to US$3,153/tonne in Jan 212, US$3,333/tonne in March, and US$3,61/tonne in May. We attribute higher TDP prices to reduced output by the world s top TDI makers Bayer (production capacity of 61, tpa) and BASF (56, tpa). In particular, Bayer seems strongly determined to raise ASP. It invested W1tn to build TDI plants (25, tpa) in China in 211. To recoup its investment, TDI spread (TDI toluene) must stay at US$1,9/tonne, the average of the past five years (27~211), or at least exceed breakeven point (US$1,5/tonne). Bayer stopped production at German TDI plants (capacity of 16, tpa) for six weeks from mid-april, and kept utilization rates at new plants in China (25, tpa) below 5% (new Chinese plants consist of two buildings, and only one building is now operating). Moreover, about 4% of TDI facilities in Europe and Asia, including BASF, likely stopped production or started maintenance in 2Q12 (table 1). Thus, global TDI supply/demand conditions should be very tight over 1Q~2Q. Major TDI makers, including Bayer, are likely to try to keep TDI spread at an appropriate level by controlling utilization rates of obsolete facilities after 3Q12. KPX s utilization rate at 1% since Apr 13 Rising TDI spread is a boon to KPX Fine Chem (production capacity of 15, tpa). It decided to operate TDI facilities at full capacity from Apr 13 and has continued to do so. We expect utilization to pick up from 33.4% in 1Q12 to 95.6% in 2Q12 and 1.% in 3Q12 and 4Q12. Meanwhile, Bayer built a TDI plant in China in 211, raising China s TDI selfsufficiency rate to almost 1%. Accordingly, KPX Fine Chem, whose major client was China, needed a new client. It has secured new clients in Asia (excluding China), the Middle East, Africa, and the Americas in 212, and as a result, China accounts for only 4% of its total exports vs 42% in 21 (chart 1~2). To go into black on higher TDI price, utilization recovery Higher TDI prices and utilization rates should boost KPX s earnings. We expect operating profit to grow from W6.4bn in 4Q11 and W2.2bn in 1Q12 to W1.7bn in 2Q, W1.6bn in 3Q, and W8.1bn in 4Q (table 2). We expect shares to rally strongly over 2Q~3Q, with operating margin recovering to 7~8% (its average over the past 16 years is 8.7%). 2 TONGYANG Securities Inc.

3 Company Report [Table 1] TDI production suspension in Europe and Asia in 2Q12 Company Plant Production capacity ( tonnes) Production suspension period Bayer Germany 16 For six weeks from mid-april BASF Germany 8 End-Apr~May Korea (Yeosu) 16 For three weeks from Apr 5 Perstorp France 126 Early May Mitsui Chemicals Japan (Omuta) 12 Jun 9~14 Japan (Kashima) 12 Jun 14~19 GNFC India 17 For three weeks from May 14 Source: ICIS, TONGYANG Securities [Chart 1] KPX: TDI export breakdown by region (21) [Chart 2] KPX: TDI export breakdown by region (212) C hina 4 2 % O thers A fric a 5 % 1 7 % A sia % M iddle E ast A meric as9 % 1 2 % A mericas 25 % C hina O thers 4 % 3 % M iddle E as t 15 % Jan~Ap r 212 A s ia 1 8 % A fric a 3 5 % Source: Company data Note: based on exports over Jan~Apr 212 Source: Company data [Chart 3] TDI price (Hwadong, China) over 211~212 (U S$ /tonne) 4,5 4, 3,5 3, 2,5 2, Bayer starts operating TDP plants (capacity 25, tpa) in China in May~Jun 211 Bayer cuts TDP price to expand market share in China Nov Jan 2 1 Jul 2 1 Jan Jul 2 11 Jan Source: Bloomberg, TONGYANG Securities May TDI prices to recover to normal level [Chart 4] Quarterly TDI spread (TDI toluene) forecast (U S$ /tonne) 3, 2,5 2, 1,5 1, 5 Five-year average (27~211) TDI spread Break-even point To go into black in 2Q12E 27 1Q4 1Q5 1Q6 1Q7 1Q8 1Q9 1Q1 1Q11 1Q12 Source: KITA, Bloomberg, TONGYANG Securities TONGYANG Securities Inc. 3

4 KPX Fine Chemical (2585 KS) [Table 2] KPX Fine Chem earnings forecast: 212 operating profit estimated at W27.1bn (turning positive y-y) Capacity (tonnes) 211 (K-IFRS non-consolidated) 212 (K-IFRS non-consolidated) Full-year 1Q 2Q 3Q 4Q 1QE 2QE 3QE 4QE E 213E TDI 25, 33,333 37,5 37,5 37,5 37,5 37,5 37,5 1, 133,333 15, 15, Utilization (%) TDI 12.9% 85.3% 36.% 3.5% 33.4% 95.6% 1.% 1.% 12.5% 69.% 82.2% 98.1% Product price (US$/tonne) TDI 2,47 2,612 2,32 2,166 2,534 3,25 3,234 3,22 2,69 2,379 3,59 3,21 Raw mat price (US$/tonne) Toluene 1,3 1,95 1,134 1,93 1,22 1,198 1,192 1, ,81 1,195 1,185 Sales (Wbn) ,375 1,419 1,388 3,277 2,12 4,626 5,167 TDI ,25 1,29 1,262 3,44 1,888 4,147 4,697 Other Operating profit (Wbn) Operating margin.3% -5.7% -34.3% -39.4% -5.% 7.8% 7.5% 5.8% 9.4% -11.8% 5.9% 6.4% Net profit (Wbn) Net margin.5% -2.6% -24.% -48.7% -4.% 5.7% 5.7% 4.7% 8.4% -8.7% 4.5% 5.2% Net profit per share (won) 7,274-4,813 5,422 7,78 Expands TDI capacity by 5k tpa Bayer builds 25ktpa TDI plant in China TDI industry momentum weakened TDI production suspended Restarts operating 2 TDI facilities (capacity 1k tpa) at end- Feb Restarts one 5k-tpa TDI plant at end-apr (all TDI facilities in operation) Asia and European TDI firms implement regular maintenance Ramadan over mid-jul ~ mid-aug K-IFRS introduced Proceeds from land disposal in Gongduk-dong (W32.9bn) Merges with H-Plus Hyco No global TDI capacity expansion plans [Chart 5] Global TDI capacity expansion forecast (' tonnes ) Global demand to grow 1,~11, tonnes a year No capacity expansion in E E 2 1 4E [Table 3] Global TDI capacity change Capacit Capacity addition ( tpa) Capacit Region Company y y End End Americas Bayer BASF Dow Others Europe Bayer BASF Perstorp BorsodChem Others Asia Bayer Mitsui Chemicals Nippon PolyUrethane BASF KPX Fine Chemical OCI Cangzhou Dahua GNFC Yantai Juli Isocyanic Ester Others Total 2, ,944 Note: Dow Chemical Bazil decided to close TDI facilities (75, tpa) in 212; Bayer and BASF plan to close existing facilities and build new lines (3, tpa each) in TONGYANG Securities Inc.

5 Company Report KPX Fine Chemical (2585 KS) pro forma financial statements (K-IFRS, non-consolidated) Statement of financial position Statement of comprehensive income FY to Dec (Wbn) E 213E 214E FY to Dec (Wbn) E 213E 214E Non-current assets Sales Investment in affiliate Cost of sales LT financial assets Gross profit Tangible assets SG&A Other non-current Reported op prof Current assets Adjusted op prof Cash & equivalent Other op prof/loss -2 ST financial assets Non-operating prof Accts rec & other Interest income Inventory Interest expense Other current Forex gain/loss -1 Total assets Equity-meth gain/loss Non-current liabilities Other 2 1 LT financial liabilities Pre-tax from cont op Other non-current liab Income tax Current liabilities Net profit Accts payable & other NP for controlling int ST financial liabilities Total comprehensive inc Other current TCI for controlling int Total liabilities EBITDA Equity for controlling int Free cash flow Paid-in capital EPS 7,274-4,813 5,422 7,78 3,126 Capital surplus Book value/share 41,987 36,11 4,933 47,51 5,137 Retained earnings Dividend/share 2, 1, Equity for non-control int EBITDA/share 8,918-4,99 9,882 11,151 5,636 Total equity Net debt Cash flow statement Valuation FY to Dec (Wbn) E 213E 214E FY to Dec E 213E 214E Operating cash flow Gross margin (%) Net profit Operating margin (%) Depreciation & amortization Net margin (%) Forex translation gain/loss EBITDA margin (%) Affiliate invest gain/loss Sales (% y-y) Inc (dec) in net working cap Operating profit (% y-y) Other Net profit (% y-y) Investing cash flow EPS (% y-y) Disp (acq) of tangible asst EBITDA (% y-y) Inc (dec) in intang asst ROE (%) Inc (dec) in ST/LT finl asst 1 13 ROA (%) Other Accts rec turnover (x) Financing cash flow Inventory turnover (x) Inc (dec) in ST/LT finl liab P/E (x) Inc (dec) in equity P/B (x) Dividend payout EV/EBITDA (x) Others Div yield (com shr, %) Inc (dec) in cash & eq Debt-to-equity (%) Beginning cash & equiv Net debt-to-equity (%) Ending cash & equiv Net fin cost/sales (%) OP/financing cost (x) Note: EPS, BPS, P/E and P/B are based on controlling interest For valuation metrics such as P/E, historical figures are based on annual averages, estimates on current price For ROA or ROE, assets and equity are averages of end-of-year figures for given year and year prior Data to 21 based on K-GAAP and from 211, K-IFRS TONGYANG Securities Inc. 5

6 KPX Fine Chemical (2585 KS) KPX Fine Chemical: production process Soft polyurethane foam: demand by industry Soft polyurethane foam DNT TDA 18k tpa 113k tpa [Downstream industry] Bought from Huchems 42% 11% 47% Transport Furniture Packing materials Hydrogen Naphtha 1k tpa TDI From Airliquide 15k tpa Soft polyurethane CO Korea Domestic 15% Used in car seats, 35k tpa Export 85% furniture, PPG From SKC, wrapping materials KPX Chemical Chlorine CDC 18k tpa Bought from Hanwha Petrochem DNT: dinitrotoluene TDA: toluene diamine CO: carbon monoxide PPG : propylene glycol CDC: carbonic dichloride Airplane Furniture (home & offices) Tech devices Train Bed foam Sports bedding hospitals sports Car Carpet seat head/armrest door trim Tiles sound-absorbing materials sun visor in-panel bumper others Source: Kumho Mitsui Chemical 6 TONGYANG Securities Inc.

7 Company Report KPX Fine Chemical (2585 KS) ratings and target price history Date Rating TP (won) (won) 1 2, 1, 8, 6, 4, 2, C urrent price Target price 212/5/25 BUY 55, 212/5/2 BUY 55, Jun 2 1 Dec 2 1 Jun Dec Disclosures & disclaimers This research report has been prepared for informational purposes only; it does not constitute an offer or a solicitation of an offer to buy or sell any securities or other financial instruments. The information and data contained in this report have been obtained from sources we consider reliable; however, we make no representation that the information provided in this report is accurate or complete, and it should not be relied on as such. The recipient of this report should use his/her independent judgment regarding the sale or purchase of any securities or financial instruments mentioned herein. We disclaim any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. This report is for our clients only. It is copyrighted material and may not be reproduced, transmitted, quoted, or distributed in any manner without the prior written consent of TONGYANG Securities Inc. As of the publication date of this report, TONGYANG Securities Inc. does not own a stake in excess of 1%, nor does it have any interest whatsoever, in the subject company (ies). The material contained herein was not disclosed by TONGYANG Securities Inc. to any institutional investors or third parties prior to its publication. The analyst (s) of this report or the analyst (s) spouse does not have any financial interest in the securities of the subject company (ies) mentioned herein, nor financial interest of any nature related to the subject company (ies) (including without limitation, whether it consists of any option, right, warrant, future, long or short position), as of the publication date of this report. Analyst certification I/We, as the research analyst/analysts who prepared this research report, do hereby certify that the views expressed in this report accurately reflect my/our personal views about the subject securities discussed in this report. Stock and sector ratings Stock ratings include an Investment Rating (Buy, Hold, Sell) as well as a Volatility Risk Rating (High, Low) that are based on the expected absolute return of a stock over the next 6-12 months. - Buy: Low Risk if a stock is expected to return 1% or more; High Risk if a stock is expected to return 2% or more - Hold: Low Risk if a stock is expected to return between -1 and +1%; High Risk if a stock is expected to return between -2 and +2% - Sell: Low Risk if a stock is expected to decline by 1% or more; High Risk if a stock is expected to fall by 2% or more Sector ratings suggest 6 to 12 - month forward investment weighting of a given sector compared to its market capitalization weighting. - Overweight: Investment weighting is higher than the market capitalization weighting - Neutral: Investment weighting is equal to the market capitalization weighting - Underweight: Investment weighting is lower than the market capitalization weighting TONGYANG Securities Inc. 7

8 KPX Fine Chemical (2585 KS) TONGYANG Securities International Network Seoul Head Office TONGYANG Securities Building Euljiro 76 Jung-gu Seoul, Korea Tel: Corporate website: Research Center TONGYANG Securities Building #32 Gookjegeumyoongro 2-gil Youngdeungpo-gu, Seoul, Korea Tel: Hong Kong TONGYANG Securities Hong Kong Limited Unit 328-9, 32/F, Alexandra House 18 Chater Road, Central, Hong Kong Tel: New York 15 East 52nd Street 25th Floor New York NY 122, U.S.A. Tel: Tokyo , Shin-Kokusai Building Maronouchi, Chiyoda-ku Tokyo, Japan 1-5 Tel: Ho Chi Minh Suite 295, Saigon Trade Center 37 Ton Dou Thang Street District 1, Ho Chi Minh City, Vietnam Tel: Manila TONGYANG Savings Bank Ground Floor, Chantham House 116 Valero Corner, Herrera Street Salcedo Village, Makati City Metro Manila, Philippines Tel: Phnom Penh #138, Norodom Boulevard Sangkat Tonle Bassac Khan Chamkarmorn Phnom Penh, Cambodia Tel: TONGYANG Securities Inc.