Posted on 26 Oct 2022
Maintain BUY but cut target price by 18.2% to KRW360,000
We cut our P/B-ROE-based TP for POSCO (10.6% COE; 7.2% sustainable ROE; 3.5% TGR) by 18.2% to KRW360,000 on (1) an increase in COE (interest rate hikes) and (2) lowered short-term ROE on expectation of a sluggish steel market until next year. That said, we raise mid-/long-term sustainable ROE (6.9%→7.2%) to reflect growing LiB Materials profitability. We maintain BUY, as the stock has 45.2% upside (vs. Oct. 24 close).
One-off expenses due to typhoons add to sluggish steel market
POSCO reported 3Q22P consol. revenue of KRW21.2tn (+2.5% YoY, -8.1% QoQ), OP of KRW920bn (-70.5% YoY, -56.0% QoQ) and NP of KRW538.1bn (-77.9% YoY, -66.1% QoQ); OP missed the market consensus by 37.7%. The most sluggish area was Steel, affected by the market slowdown and typhoon-related damage (early September). The downstream production line suffered damage, lowering steel product sales volume by 12.4% YoY. Also, losses from flood damage, restoration costs and recognition of damage to tangible assets were reflected, leading to consol. OP losses of KRW435.5bn; non-OP losses of KRW147.7bn were incurred. Consol. OP at major overseas subsidiaries fell KRW310.9bn YoY on the slowing global steel market, but POSCO Energy/POSCO Chemical saw OP improve by KRW67bn thanks to increases in prices and sales volume.
Impact of typhoon to last until end-4Q22; new business should provide long-lasting breakthrough
Although POSCO may be able to lower input costs starting in 4Q22, additional restoration costs are expected (production facilities to be restored sequentially this year). The global steel market is sluggish as well, but new business involving lithium and nickel, for which facility investments are underway in earnest, should provide a long-lasting breakthrough.
Source:Business Korea
