冠亚体育网站，3Q preview: We believe Kumho Petrochemical's operating profit will increase 9.6% q-q in 3Q toKRW48.4b— despite q-q contractions in energy and phenol derivatives profits—on a rebound insynthetic rubber sales volume and widening synthetic resin spreads..
The synthetic rubber production margin still remains weak, as expected. As a result,Kumho Petrochemical’s (KKPC) consolidated 1H17 operating profit has postednegative YoY growth for two years in a row.
WHAT’S THE STORY?
Kumho Petrochemical:Nothing has changed with synthetic rubber。 Nothing has changed: Kumho shares generally rally when product prices in the rubber valuechain are rising, but in recent quarters the stock has repeatedly retreated on announcements ofdisappointing earnings. We expect the same this quarter. Butadiene and SBR prices are unlikelyto keep rising once regular maintenance at Formosa (capacity: 0.18m tonnes) ends late thismonth and China's National Day holidays begin. Consequently, any structural improvement inKumho’s synthetic rubber business is unlikely. We reiterate HOLD on the stock with a 12-monthtarget price of KRW85,000.
We expect the synthetic rubber segment to have posted 1% OP margin in 2Q17, andthere’s little chance to see the margin improving meaningfully anytime soon. Thelatest stats indicate that the synthetic rubber inventory in China is at a historical highlevel, despite the largest producer (and KKPC’s major competitor in the region)Sinopec (386 HK, HKD5.93, Buy) slashing its synthetic rubber output by c13% until2016 vs in 2011 due to weak demand. It appears to us that it will be several yearsbefore the overbuilt capacities gets cleared.
2Q preview: We believe Asiana Airlines is likely to post 2Q sales and operating profitthat grew a respective 14.7% and 466% y-y to KRW1.45t and KRW33.3b to beatconsensus sharply. Although Chinese restrictions on travel to Korea remain a burden, webelieve the company’s earnings on non-China short-haul routes will prove to have beensolid thanks to route restructuring in 1Q. In addition, international revenue passengerkilometers should rise 3.2% y-y aided by a long holiday in May and strong demand onlong-haul routes (led by Europe ones), even in traditionally weak quarter. Load factor andwon-denominated yield are likely to remain similar y-y, driving international passengersales to rise 4% y-y. Meanwhile, the cargo unit is likely to post volume growth and yieldimprovements for a third straight quarter—we expect its sales to rise 17.4% y-y as revenuefreight tonne kilometers, won-denominated yield, and load factor should rise a respective6.2%, 11.3%, and 2.6%pts y-y for the quarter.Raising target but maintaining HOLD: Reflecting our more positive 2Q earningsoutlook and revised forecast for end-2017KRW/USD (from KRW1,200to KRW1,150), weraise our 2017operating profit forecast for Asiana by 23% and accordingly lift our targetprice by 20% to KRW6,000(a 20% discount to the global peer average of 1.52x 2017P/B).The external environment has been better than worried (WTI fell to USD47.7/bbl as ofJun 2and the won has strengthened vs the dollar) and anticipation has risen over easingTHAAD-related risks in 2H (travel agencies resuming visa application services and theChinese government allowing more flights on regular routes). (The firm generated 21% ofits sales from China routes in 2016.) Yet, we keep the stock at HOLD due to lingering risksrelated to the Kumho Group.
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