[Click eStock] "POSCO, Valuation and Dividend Appeal Remain... Uncertainty from COVID-19 is a Burden"

[Asia Economy Reporter Eunmo Koo] SK Securities expects that POSCO's low valuation (stock price level relative to earnings) and dividend appeal remain intact, but uncertainties in demand and market conditions due to the spread of the novel coronavirus (COVID-19) will continue to pose challenges for the time being.

On the 28th, SK Securities analyst Soonwoo Kwon reported that POSCO's consolidated sales in the fourth quarter of last year decreased by 3.5% year-on-year to 16 trillion KRW, and operating profit dropped by 56.1% to 557.6 billion KRW. Analyst Kwon explained, "Unlike in the past, the domestic and international steel sectors were significantly affected by deteriorating market conditions and spreads." He estimated this year's consolidated sales to decline by 2.4% to 62.8 trillion KRW, and operating profit to decrease by 7.8% to 3.5669 trillion KRW.

Currently, steel distribution prices in China are falling, and it is difficult to predict when demand will recover. Analyst Kwon noted, "Although operations have been suspended in some regions, the sharp drop in demand has caused a surge in circulating inventory, which is also a factor putting downward pressure on global product prices." He added, "While stimulus measures and restructuring of competitors after the COVID-19 situation ends are positive factors, risk management is necessary until then."

The investment opinion was maintained as 'Buy,' but the target price was lowered from 360,000 KRW to 265,000 KRW. The judgment is that it is necessary to wait to confirm improvements in market conditions and price increases rather than relying on expectations.