20170814-三星证券-PETG_capacity_expansion_boosts_results_12页_495kb_495kb

SK Chemicals (006120) - Company Update Summary

Core Content Overview

SK Chemicals, a South Korean chemical company, reported its second-quarter results, highlighting the positive impact of its PETG capacity expansion on its operating profit. The company also announced plans to split into holding and operating entities, which has affected its stock performance. This summary outlines the key financial highlights, the impact of the spin-off on its financial structure, and the outlook for its divisions.

Key Financial Highlights

• 2Q17 Performance:

  • Consolidated sales increased by 22.6% year-over-year to KRW1,990.7b.
  • Consolidated operating profit rose by 4.3% to KRW58.2b.
  • Consolidated net profit surged by 30.8% to KRW76.9b, surpassing expectations.

• Parent-Based Performance:

  • Sales increased by 2.6% to KRW299.4b.
  • Operating profit rose by 32.1% to KRW14.2b, with a 1% point increase in margin to 4.7%.

• Subsidiary Performance:

  • SK Gas (45.5% owned): Sales increased by 27.1% to KRW1,652.5b, but operating profit and net profit attributable to controlling shareholders fell by 11.1% and 1.7%, respectively.
  • SK D&D contributed to improved net profit for the parent company.
  • SK E&C reported a net profit of KRW20.2b, with KRW13.3b from the sale of treasury shares and KRW20.1b in deferred taxes.

Key Changes and Revisions

• Recommendation: Maintained as BUY.
• Target Price: Remained at KRW93,000, unchanged from previous estimates.
• EPS Projections:
  • 2017E: KRW4,447.
  • 2018E: Revised down to KRW5,064 (a -3.9% change from previous estimate of KRW5,267).

Share Price Analysis

• Current Price: KRW65,700.
• Target Price: KRW93,000.
• Market Cap: KRW1.5t / USD1.3b.
• Shares (float): 22,364,135.
• 52-Week High/Low: KRW79,500 / KRW55,400.
• Avg Daily Trading Value (60-day): KRW21.7b / USD19.0m.
• Share Price Movement:
  • Fell 20.2% since the announcement of the spin-off.
  • Still 12.2% below the price when treasury shares were sold.
• Valuation Metrics:
  • Forward P/E: 13.6x.
  • P/B: 0.9x.

Strategic Developments and Future Outlook

• Vaccine Development:

  • SKYpneumo is in Phase III trials for expansion to children and involved in a patent lawsuit against Pfizer.
  • Expected to launch in Korea in 2018 if successful.
  • Applied for WHO pre-qualification for flu vaccine and Korean approval for herpes zoster vaccine.
  • Phase III trials for quadrivalent flu vaccine in Korea.
  • Phase I trials for HPV vaccine and rotavirus vaccine.
  • Pre-clinical trials for pneumococcal vaccine with Sanofi, expected to end this year.

• Royalties:

  • Expected to receive KRW5b in royalties from CSL for CSL627 (hemophilia-A treatment).

• Spin-Off Plan:

  • The company is planning a spin-off into holding and operating entities.
  • Corporate Structure:
    • Surviving entity includes SK Chemicals and SK Gas.
    • New entity will focus on eco-energy solutions and real estate.
  • Ownership Structure:
    • SK Gas (45.5% stake), SK E&C (28.3% stake), and Huvis (25.5% stake) are key subsidiaries.
    • The spin-off will restructure the company’s financial statements, with significant shifts in assets and liabilities.

Financial Impact of Spin-Off

• Current Assets:
  • Before spin-off: KRW595,208b.
  • After spin-off: KRW552,628b.
• Fixed Assets:
  • Before spin-off: KRW1,935,923b.
  • After spin-off: KRW1,086,681b.
• Total Assets:
  • Before spin-off: KRW2,531,131b.
  • After spin-off: KRW1,639,309b.
• Liabilities:
  • Total liabilities before spin-off: KRW1,144,782b.
  • After spin-off: KRW919,161b.
• Equity:
  • Total equity before spin-off: KRW1,386,349b.
  • After spin-off: KRW720,148b.

Divestments and New Investments

• Divestments:

  • Yarn/raw cotton (2000): KRW337b.
  • Fabric (2003): KRW62b.
  • Fiber (2007): KRW16b.
  • Petrochemical (2008): KRW528b.
  • Acetate and others (2009): KRW164b.
  • Keris/Eurochem (2010): KRW601b.
  • Utis (2010): KRW15b.
  • Total Divestments: KRW1,722b.

• New Investments:

  • PETG/CHDM (capacity expansion): KRW154b.
  • Biodiesel business: KRW31b.
  • Pharmaceutical business (acquired SK Pharmaceutical and Dongshin Pharmaceutical): KRW400b.
  • PPS business: KRW69b.
  • Total New Investments: KRW654b.

Conclusion

SK Chemicals is experiencing a positive shift in its PETG business, which is driving its operating profit. The spin-off into holding and operating entities is affecting its stock price, and the company is yet to fully price in the treasury stock cancellation. With a BUY recommendation and a target price of KRW93,000, the firm is focusing on vaccine development and eco-friendly materials to enhance its market position and profitability. The divestments and new investments are part of a strategic restructuring to focus on core businesses and future growth opportunities.