OCI Holdings Company Ltd. (A010060) Earnings Call Transcript & Summary

[Audio Gap] wise we have increased the 14% additional increase in this quarter. However, as I mentioned earlier, we have to go through some annual turnaround over second quarter that result in almost a 30% of the decrease in the manufacturing capacity wise. That [indiscernible] was some of the difficult part for this quarter. However, since we were able to successfully complete our -- the turnaround, and we also completed 5,000 ton of additional debottlenecking process, the third quarter should be in fully operation and full 35,000 ton capacity plant. So this will provide a much -- some of the better results going forward. In addition to that, the metallurgical silicon which is the key raw material for polysilicon, and also substantial cost component -- then we were finally able to stabilize the purchase price of metallurgical silicon. Hopefully, this can lead into even more -- the stable cost structure. I'm going on to Page 6, which is the Petrochemical and Carbon Materials side. Our -- this quarter revenue recorded KRW 474 billion, and the operating income is KRW 34 billion. So this second quarter we had a many events for this business sector, especially because many of our raw material are related to petrochemical or the steel mill activities. Because of war in Ukraine which spark the substantial -- the price increase in oil and oil derivative product -- so our -- the manufacturing cost actually went up price substantially during this quarter. However, we were able to successfully pass through many of the cost increase in our -- the final sales that -- so we were able to achieve quite healthy -- the revenue growth and also stabilize then the operating income. However, our third quarter outlook is somewhat mixed because we don't know how long this -- the war in Ukraine last, because this has been substantially impact on many of the petrochemical product in the market, and both in some of the pricing side and also total -- the volume movement side. So we will pay attention to this business and operation, and hopefully, we can provide some healthy growth again for this third quarter. However, I mean, we have many -- some -- the moving targets to deal with that -- and this is going to be some of the big challenge for this quarter. I go to Page 7, the Energy Solutions side. So we were able to record KRW 140 billion of revenue and only KRW 5 billion of operating income. This is a substantial decrease from the last quarter. The biggest issue was unexpected national strike of logistic union. So we were not able to receive our fuels for the power plant in time. So we have to conduct unplanned -- the plant -- the maintenance program, which was supposedly planned in November. So this second quarter, we had a much higher -- some -- the fuel cost and low operating income that actually result in lower revenue and much lower the operating income. However, third quarter, since we already completed all those maintenance program and we start seeing some stabilizing -- some of the fuel cost, and this had -- summer actually resulted in much high energy demand. So we anticipate that this third quarter should go back to some of the healthy -- the margin as we previously showed. And we're going to the Page 8 on the Urban Development side. So quarterly revenue is KRW 106 billion and operating margin is KRW 26 billion. This revenue and operating income is solely coming from our previous sale of some resident unit in 2021. In 2021, we have sold 3,750 -- some residential apartment unit. So based upon our -- the construction schedule, so we actually recognize our revenue and profit based upon the progress of those -- the construction side. This year we plan to sell over 4,000 apartment unit this year, 1/3 in April in second quarter and 1/3 in July in third quarter, and 1/3 in November, which is the fourth quarter. However, we had encountered some foreseeable challenge from inter-municipal -- some of the government that we are in violation of certain – some -- the restriction and also some -- the agreements. So we went through many of the hearing process and we have provided all the right documentation that we have not violate any single cases. And we just had a final hearing yesterday. So hopefully, we can clear all of this -- the regulatory issue, and we can go back to this -- the sales, the process again. However, even though we decide to go to the sales activity, this will take minimum 2 to 3 month of another round of regulatory work. So the earliest time we can consider or selling additional apartment unit is going to be as fast as the late October, but realistically, we anticipated in some time in November. So we originally planned to sell over 4,000 unit. However, this November, we anticipated at max the sale of 3,000 unit of apartment. Once we do it -- and next year we will show much better revenue and the profit numbers. At this moment, we are recognizing various fraction of those residence unit sales as our revenue and the profit. However, as we go through much bigger number of the apartment, the sales, and that will automatically generate a much higher revenue with stable cash flow. So hopefully, we can accelerate this process. Page 9 is the financial position. The -- formerly we used to call it balance sheet. And it's pretty much actually stable on -- compared to last -- the quarter. Only big difference is in the inventory side, there was KRW 120 billion of increase in inventory. That's mostly because all the raw material cost and also our final product cost went up dramatically in the second quarter. So since both raw material and final product went up substantially, so our temporary -- the number for the inventory went up by quite some -- such a number. However, going to the third quarter, we start seeing some more stabilized -- the raw material cost and our final -- the product cost. So we believe, I mean this -- the inventory number will go down, and that will also give us much better cash position for the company. So when you look at for the leverage ratio, which we -- is one of very critical management point, we still keep our company leverage ratio of 76%, which is quite healthy level and one of the best in this -- the Korean chemical industry. So that's about our -- the earnings release. And I'm going to go back to Page 11 for polysilicon market trend. So there were several announcement of the capacity expansion or new capacity build-up, or just the capacity expansion in China on polysilicon sector. And some of them, I mean, they are on stream already. So they start actually supply to the market. However, there are quite -- substantial portion of this announced new capacity has not been fully operational, and we believe there is more than a year of delay in many reason because of lockdown in China and expensive raw material cost. And also, it has not been easy to move around some of the people. So because of these many complicated reason , so many substantial portion of newly announced -- the polysilicon capacity in China has not been in place yet. So someday, they will come, but until then, we are experiencing quite a shortage of polysilicon because of strong demand in downstream market. So -- and since -- ever since one of the large producer in Xinjiang area experienced some [ tragedic ] accident in June, and after that, there has been tightened regulation and inspection. So many of the Chinese -- China based -- the polysilicon factory is going through very intense maintenance program. So this will intensify supply shortage of polysilicon. And this is our -- the market view of polysilicon market at this moment. Going back to -- going to Page 12 -- and this is just a snapshot of demand forecast for renewable energy, especially solar. So in this year, we anticipate almost 240 gigawatt of new capacity installation in solar only, and this is above 20% increase year-over-year the last year. And this is quite remarkable despite all those -- what's happening in Ukraine by the Russian invasion. And especially these -- the Ukraine crisis is actually causing global energy -- some -- the crisis in many sectors. So this actually -- the -- fueled some -- surged the demand for renewable energy, and especially the solar sector. Because even like Texas or Southern California or Arizona of the United States or western part of Australia, Southern part of Africa and Northern Africa and also Southern Europe, these areas we already experienced over less than $0.02 per kilo ton [ or ] -- of levelized -- the cost of the energy -- for this solar energy. And this is actually even 1/3 of a typical -- the nuclear power plant -- the energy cost. So because of this competitive nature of solar energy, which do not -- any need for the government support, and there was a substantial natural market demand for solar, and that is driving the market dynamics going forward. And we believe this is -- the market trend will last. On Page 13 is a snapshot of our debottlenecking work of OCI in Malaysia. As I mentioned earlier, so we shut down a substantial portion of our original polysilicon factory in Korea second quarter of 2020. And starting from third quarter, we start disassemble our existing polysilicon factory, and 2021 in August and September, we ship certain portion of polysilicon manufacturing asset from Korea to Malaysia. And it took about 10 months to reassemble our polysilicon factory. We finally completed 5,000 ton debottlenecking in -- 2 month ago. And starting from this July, we confirm that this all -- 5,000 ton debottlenecking project has been successfully completed and fully operational. So this is a very unusual and a very -- actually very extraordinary activity because there is no case like this of -- polysilicon manufacturing process is highly engineered and very complicated engineering work. And we successfully disassemble in Korea and we move it to another country, and we successfully reassemble this, and we complete the commissioning, and this is actually a demonstration of strong -- some engineering capability of OCI, and also fully dedication of many partner company that have been helping us. So since we confirm that we were able to fully deliver this -- the new debottlenecking activity, now we'll be going through those -- the disassemble of remaining polysilicon asset in Korea. We will expedite some of the movement to Malaysia. And next debottlenecking will be not just the 5,000. This will be somewhere between 20,000 to 30,000 ton capacity expansion that we targeted maybe 2024. However -- so there is many things that we have to deal with because -- The reason for delay so far is, in first and second quarter for this year after the war in Ukraine, all the key raw material price, including carbon, steel and zinc and also some [ tint ] and many of the special non-ferrous alloy price went up just so much. The carbon, steel price went up over 2x and many of the numbers -- metal price went up more than 5x to 10x for -- during this quarter. So if we announce any -- some expansion this -- the last quarter, our expansion engineering work will be based upon this historic high material cost environment. So that's why we have been waiting for stabilizing this material price into more realistic level. So once we finally meet those -- the mutually -- the workable -- the price targets, and then we will actually go full speed on those -- the new expansion. So once we decide and once we announce, we will come back to you and fully brief about some of our new expansion activity. Page 14 is just announcement that, of successful completion of commissioning -- and we're going into full commercial production for hydrogen peroxide by joint venture between OCI and POSCO Chemical. POSCO Chemical is 51% shareholder of this company. However, OCI has been conducting all those -- the engineering and factory operation and marketing. And this has been very significant success because hydrogen peroxide has been quite short in this sector, especially for semiconductor and other electronic grade market. And this -- the [ P&L ] chemical should be able to provide this big actually contribution to this very short -- the product market. Page 15 is a brief announcement that the OCI is merging our bio-related business with Bukwang Pharmaceutical. As you mentioned -- as you know already, in this first quarter we have acquired the substantial stake in Bukwang Pharmaceutical, which is a very renowned R&D oriented pharmaceutical company in Korea. So in order to maximize the synergy, we decide to move our bio team to Bukwang and let fully Bukwang to handle all of the -- our -- the bio and the pharmaceutical-related business activity on behalf of OCI. So we believe this is the right move and the expertise that the Bukwang has, will be -- will give us a lot of insight on the future activities. So this is it for our -- the earnings release. And if you have any question, we're happy to answer.

[Operator Instructions] [Audio Gap] As there are no further questions, we will now end the Q&A session. For any additional inquiries, please contact our IR department.

Thank you very much.

This concludes the Fiscal Year 2022 Second Quarter Earnings Results by OCI. Thank you for your participation.