SKC Business Update

SKC: Earnings Momentum and Growth Potential

• By Lee Jin-myung
• June 11, 2021, 10:09

The author is an analyst of Shinhan Investment Corp. He can be reached at jinmyung.lee93@shinhan.com. — Ed.

2Q21 OP to reach a quarterly high of KRW100.5bn (+23% QoQ)

SKC’s operating profit will likely reach a new quarterly high of KRW100.5bn (+23% QoQ) in 2Q21. The chemicals division is forecast to post all-time high earnings with operating profit of KRW64.7bn (+16% QoQ) and operating margin of 27% (+3%p QoQ). Strong chemicals earnings should be driven by: 1) continued tight supply for propylene oxide (PO); and 2) 89% QoQ rise in propylene glycol (PG) spread on brisk sales of high value-added products.

The mobility materials division is projected to report operating profit of KRW17.8bn (+7% QoQ) for 2Q. Sales growth is expected on partial reflection of shipments from the new fifth plant, but margin improvement should be limited due to increased costs (labor, etc.). Operating profit from industrial materials will likely grow 5% QoQ to KRW15.5bn on continued strength in downstream demand. Semiconductor materials earnings should continue on an uptrend thanks to the ramp-up of anew CMP pad plant.

2021 outlook: OP of KRW383bn (+101% YoY) on strong chemicals and copper foil

For full-year 2021, we project operating profit at KRW383bn (+101% YoY). Chemicals should post operating profit of KRW236.7bn (+168% YoY), driving up overall earnings. The PO spread is forecast to remain high in 2H given strong demand amid economic recovery. Additional profit growth is expected as high value-added PG sales will rise once a new DPG plant (35,000 tons) goes into production in 2H.

Mobility materials will likely report YoY growth of 73% in sales and 59% in operating profit. Earnings should be sluggish in 1H due to costs of capacity expansion, but we expect to see sharp increase in sales and profit for 2H with the fifth plant running at full capacity from 3Q. SKC moved up the ramp-up target for the sixth copper foil plant amid supply shortages, and also revised up its capacity expansion target to meet rapidly growing demand in downstream industries. Capacity additions planned in Malaysia, the US, and Europe should raise the company’s total copper foil capacity up to 250,000 tons by 2025.

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