[Edaily Reporter Kim Hyung-il ] Shinhan Investment Securities forecast that KumhoPetrochemical(011780)is expected to see a significant decline in profits in the third quarter due to a wait-and-see attitude toward purchasing amid falling raw material prices and the impact of the lag effect in raw material input (reverse lag). However, the firm noted that the positive trend in the synthetic rubber industry remains valid. It also maintained its “Buy (BUY)” investment rating and target price of 200,000 won.

On the 11th, Lee Jin-myung, an analyst at Shinhan Investment Securities, stated, “Second-quarter operating profit came in at 339 billion won, significantly exceeding the market consensus (147 billion won),” adding, “While a downward adjustment in operating rates was unavoidable due to disruptions in raw material procurement caused by the war in Iran, the synthetic rubber spread surged as demand for securing supply volumes expanded.”

He continued, “Our flagship product, NB latex, returned to profitability due to rising selling prices driven by increased operating rates at glove manufacturers and reduced supply from competitors. Synthetic resins also returned to profitability as selling prices for acrylonitrile butadiene styrene (ABS) rose amid concerns over raw material supply.” “Phenol derivatives and high-performance rubber materials for the automotive sector (EPDM) also saw improved performance due to wider spreads, despite a decline in sales volume caused by scheduled maintenance,” he explained.

The analyst noted, “Amid robust demand for synthetic rubber used in tires, Chonbang demand for NB latex is also continuing to recover due to rising operating rates at glove manufacturers,” adding, “Considering limited new capacity expansions, the expansion of high-value-added products such as SSBR, and the solid profitability of EPDM, the trend toward market improvement centered on synthetic rubber remains valid.”

He continued, “The current 12-month forward price-to-book ratio (PBR) of 0.5x is undervalued compared to the boom-period low of 0.9x,” adding, “Given the company’s solid financial structure and shareholder return policies, such as share buybacks and cancellations, a revaluation of the stock price is possible.”