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Impact of China tailwinds needs to be confirmed

Lift TP to W144,000; maintain Hold

We raise our target price for Kumho Petrochemical from W117,000 to W144,000, based on an upward revision to our 12-month forward target P/B from 0.56x to 0.68x (reflecting a broad re-rating across the chemicals sector). While earnings are likely to improve from 1Q26 following seasonal weakness in 4Q25, there are two points to monitor: 1) whether the recent sharp rise in butadiene prices can be sufficiently reflected in selling prices; and 2) whether expectations tied to higher chemical prices in China and regulatory changes translate into visible earnings improvement. Against this backdrop, we keep our Hold rating.

4Q25 review: OP misses consensus by a wide margin

Kumho Petrochemical reported 4Q25 operating profit of W1.5bn, missing the consensus of W48.3bn by 97%. The significant miss was attributable to weakness in “other” businesses (e.g., energy, fine chemicals) and one-off costs related to routine maintenance. Other businesses recorded an operating loss of W2.3bn due to SMP weakness (which eroded energy profitability) and scheduled maintenance amplifying the impact (1Q-3Q25 average OP margin of 22.1%). Routine maintenance was carried out for roughly 15?20 days across all segments except EPDM. Intensified competition in NBL for synthetic rubber, seasonal softness in synthetic resins, and a delayed demand recovery in phenol derivatives also contributed to the QoQ profitability decline. On a positive note, EPDM delivered results broadly in line with 3Q25, supported by solid demand and the absence of maintenance.

1Q26 preview: OP to improve markedly QoQ due to a low base

For 1Q26, we forecast operating profit to climb QoQ to W54.4bn (vs. W1.5bn in 4Q25), driven by low base effects (stemming from maintenance) and improving synthetic rubber spreads. While raw material costs for synthetic rubber have risen following the sharp increase in butadiene prices in January, we expect higher costs to be passed through to selling prices on the back of resilient demand. We expect profitability improvement to be more pronounced in 2Q26 than in 1Q26.

For the full year of 2026, we expect YoY margin improvement for synthetic rubber, while we take a more cautious view on other segments. Competition in rubber should ease vs. in 2025, but weak prices are likely to persist across the remaining segments.