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Earnings

Kumho Petrochem posts strong Q1, chairman resigns to end family feud

May 04, 2021 (Gmt+09:00)

Kumho Petrochemical's resigning chairman Park Chan-koo
Kumho Petrochemical's resigning chairman Park Chan-koo

Kumho Petrochemical Co. has again stunned the market by reporting its highest-ever quarterly revenue and profit figures in the first quarter of this year, after having delivered stellar earnings for the full year of 2020.

At the same time, the current Chairman Park Chan-koo will be resigning from his chairman and board member positions, in a move to shift the company’s governance structure by putting an end to the family-run management practice and appointing an external CEO instead.

KUMHO’S RECORD-HIGH EARNINGS IN Q1

The petrochemical company said on May 4 that its first-quarter revenue marked 1.85 trillion won ($1.65 billion) and its operating profit stood at 612.5 billion won ($545 million), both the highest quarterly numbers in the company’s history.

In comparison with the first-quarter figures last year, Kumho Petrochemical’s revenue increased by 51.3% and its operating profit rose by 360.2%. Its operating profit margin for the quarter was also the highest, reaching 33%.

Analysts say that its operating profit is especially remarkable, which in the first quarter has already reached 82% of last year’s full-year figure of 742.2 billion won ($660 million).

The analysts added Kumho Petrochemical’s operating profit for 2021 will surpass 1 trillion won ($890 million) and can even reach 2 trillion won ($1.78 billion) in favorable market conditions.

Kumho’s first-quarter performance was largely driven by its synthetic rubber business, which accounted for almost half of its operating profit with 292.1 billion won ($260 million), especially the acrylonitrile butadiene (NB) latex segment. NB latex is the material used to make disposable latex gloves, which saw skyrocketing demand with the spread of COVID-19.

The company’s synthetic resin segment was another growth driver, fueled by higher demand for acrylonitrile butadiene styrene (ABS) used in automobiles and home appliances, and polystyrene (PS) used in disposable packaging.

SPECULATION SURROUNDING RESIGNATION
 
Industry analysts say that there are three possible reasons behind Chairman Park Chan-koo’s resignation decision amid the record-high earnings.

The first possibility has to do with the recent feud with his nephew Park Chul-wan, the single largest shareholder of the company with around a 10% stake, over the ownership of the company.

Although Park Chan-koo defended his chairmanship at the recent shareholder meeting with his 6.69% share, his son’s 7.17% and the support of the National Pension Service (NPS) with around an 8% share, many say that the chairman wants to avoid a similar situation in the future by pulling out from the battle altogether.

The second reason, some say, has to do with the stellar performance itself. According to this line of interpretation, Park’s rationale behind resigning at the peak of the company’s history is to leave open the option of a comeback, when the company is not performing so well under the new leadership.

On such a view, a Kumho Petrochemical representative said: “There was a consensus within our company that we need to make a transition to a management structure led by an externally employed CEO, once we stabilized our profit model.”

The petrochemical company said on May 4 that its first-quarter revenue marked 1.85 trillion won ($1.65 billion) and its operating profit stood at 612.5 billion won ($545 million), both the highest quarterly numbers in the company’s history.

Others say another potential reason for Park’s resignation are South Korean Ministry of Justice’s employment restrictions applying to the chairman.

The chairman in 2018 was sentenced to three years in prison for misappropriation of business funds, with five years of probation. Park made his return as the CEO of the company in 2019, but was notified of the ministry’s employment restrictions shortly afterward. According to Korean law, those convicted of embezzlement or misappropriation of funds cannot be employed by the same company for two years. 

Park and the Ministry of Justice are currently fighting a legal battle at a higher court, as Park made an appeal after the first trial, saying that the law stipulates only that he cannot work for two years after the five-year probation period. The first court ruled that the two-year block includes the probation time from the beginning of the sentence.

Write to Jae-kwang Ahn at ahnjk@hankyung.com

Daniel Cho edited this article.

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