Analysts are focusing on Kolon Industries' (120110.KS) undervaluation and the additional growth potential of its industrial materials division. They say a tire cord capacity expansion that uses existing facilities, along with rising aramid demand driven by the spread of artificial intelligence data centers, can support an earnings recovery.
The average target price for Kolon Industries over the past three months stood at 106,167 won, according to financial data provider FnGuide on the 13th. Among the six brokerages that issued target prices, the highest was 118,000 won and the lowest 96,000 won. Compared with the closing price of 57,400 won on the 11th, that consensus implies upside of about 85%.
The market is paying attention to the cost efficiency of the tire cord expansion in Vietnam. Kolon Industries plans to complete the expansion in the fourth quarter of this year and begin full operations early next year. Capacity will rise 58.3% to 57,000 tons a year from 36,000 tons. A typical new plant investment would require about 200 billion won, but the company cut the cost to about 30 billion won by using idle equipment and existing infrastructure at its plant in Nanjing, China. Because capacity is expanding without a sharp increase in fixed costs, a higher utilization rate can translate into better profitability.
Conditions in the aramid market are also cited as a factor for re-rating. IBK Investment & Securities estimated that demand for para-aramid, used as a reinforcing material in optical fiber, could add up to 12,000 tons by 2028 as AI data centers proliferate. That is equivalent to as much as 10% of global nominal capacity. Products for optical cables require high strength and consistent quality, so rising demand is likely to lead to a shortage of effective supply, the brokerage said.
Yuanta Securities expects the earnings recovery to expand the company's capacity to invest. It estimated free cash flow generation this year at about 460 billion won, including asset sales, and said there is greater room for management strategy to shift from financial stability to growth investment. "The price-to-book ratio remains at about 0.4 times," said Hwang Kyu-won, an analyst at Yuanta Securities. "As free cash flow generation improves, the company will shift its corporate strategy from financial stabilization to growth investment."
