Hyosung Group recorded record-breaking performance in the second quarter following the first quarter. This is because Hyosung’s core affiliates, which are called ‘the three material companies’, have recorded new record highs for the quarter. The solid growth of these companies is expected to continue into the second half of the year.
Hyosung Group achieves highest performance in 2Q thanks to three material companies
Major affiliates, record-high performance
Hyosung Corporation, the holding company of the Hyosung Group, recorded ‘surprising results’, exceeding market expectations with sales of 946.8 billion won and operating profit of 218 billion won in the second quarter of this year. Compared to the same period last year, sales increased by 72% and operating profit increased by 2316% (about 23 times).
Hyosung’s good performance came from equity valuation gains in affiliates. This is because materials affiliates, Hyosung TNC, Hyosung Advanced Materials, and Hyosung Chemical, recorded record-breaking quarterly earnings. Hyosung TNC’s sales in the second quarter were 2.142 trillion won, up 113% from the same period last year. The operating profit was 387.1 billion won, and the company succeeded in turning to the black. Hyosung Advanced Materials recorded sales of 872.4 billion won, a 131% increase from the previous year, and its operating profit turned to black with 117.8 billion won. Hyosung Chemical recorded 619.2 billion won in sales and 71.3 billion won in operating profit in the second quarter. Sales increased 44% from the same period last year, and operating profit increased nearly 19 times (1881%) from the previous year.
① Corona 19, which was a bad news, this year is a good news
The three affiliates of these materials suffered a direct hit in sales last year due to the novel coronavirus infection (COVID-19). However, this year, the COVID-19 outbreak has been a good thing. First of all, in the aftermath of the pandemic, the demand for spandex, which is used to make functional sportswear or masks for home training, is continuously increasing. As a result, Hyosung TNC, which has the largest market share in the spandex market, also saw a significant increase in performance.
Hyosung Chemical benefited from the proliferation of remote classes and telecommuting. This is because, as sales of electronic devices used for non-face-to-face communication increased, the operating profit of TAC film used for screens and NF3 (nitrogen trifluoride), which removes impurities from semiconductors, increased significantly.
② Increased sales of high-margin products through eco-friendly consumption
The ESG (Environmental, Social, Governance) craze and eco-friendly consumption trend also had a positive effect on Hyosung’s performance. An official from Hyosung TNC explained, “Sales of high-margin differentiated products have increased, such as the increase in sales of Regen, an eco-friendly fiber made from waste plastics and waste plastic bottles.”
Hyosung Advanced Materials benefited from the growing electric vehicle market. An electric vehicle is heavier than an internal combustion engine vehicle due to the weight of the battery, but as the weight of the body increases, the tire wears out quickly. For this reason, tires for electric vehicles use a lot of special fibers such as tire cords to increase durability and reduce wear. The petrochemical industry estimates that 10-20% more tire cords are used for tires for electric vehicles than for vehicles with internal combustion engines.
③ Effect of conversion to a holding company
In June 2018, Hyosung Group took Hyosung as its holding company and spun off four business divisions: Hyosung Advanced Materials, Hyosung Heavy Industries, Hyosung TNC, and Hyosung Chemical. Through this, Hyosung’s major business divisions were able to increase the efficiency of the management system, and Hyosung was able to enjoy the effect of equity gains from subsidiaries. Currently, Hyosung Co., Ltd. owns 21.2% of Hyosung Advanced Materials, 32.5% of Hyosung Heavy Industries, 20.3% of Hyosung TNC, 20.2% of Hyosung Chemical, and 35.3% of Hyosung ITX.
The outlook for the second half of the year is ‘clear’
In the second half of this year, the earnings of the three materials affiliates of Hyosung are expected to continue to show an upward curve. Hyosung TNC is building spandex factories in the Ningxia district of Jung-gu (36,000 tons per year), Turkey (15,000 tons), and Brazil (90 million tons), all of which will be expanded within this year. Accordingly, Hyosung’s spandex production is expected to increase by about 20% next year.
Hyosung Advanced Materials completed the expansion of its aramid Ulsan plant in May, and plans to increase its production from 4,000 tons to 24,000 tons by 2028 through the expansion of the carbon fiber plant. “The effect of aramid capacity expansion will appear from the third quarter,” said Anna Lee, an analyst at eBest Investment & Securities. Yang Ji-hwan, an analyst at Daishin Securities, said, “The value of the stake held by Hyosung has surpassed 1.8 trillion won due to the improvement in the performance of its affiliates.”
By Kim Kyung-mi, staff reporter [email protected]