[Click eStock] “Ssangyong Cement, Cost Reduction Investment Effects to Begin”

[Asia Economy Reporter Eunmo Koo] Shin Young Securities forecasted that Ssangyong Cement will begin to see the effects of cost reduction investments. The investment opinion and target price were maintained at ‘Buy’ and 9,000 KRW, respectively.

Ssangyong Cement’s sales in the second quarter of this year were 385.2 billion KRW, down 9.2% compared to the same period last year, while operating profit increased by 7.5% to 90.7 billion KRW. Researcher Sera Park of Shin Young Securities explained in a report on the 6th, “In the second quarter, cement shipments fell by 11% year-on-year due to the temporary reduction in construction orders caused by COVID-19 and the total strike of ready-mix concrete trucks in May, resulting in continued negative growth in sales following the first quarter.”

Despite the decline in sales, operating profit rose 7.5% year-on-year, and the operating profit margin reached a record high of 23.5%. Researcher Park analyzed, “The cost reduction effect began to appear as some of the new circular resource facility investments, which started in December 2018, were partially completed (Phase 1 completed in January) and began operation, which is encouraging. Profit contributions occurred in three areas: reduced use of thermal coal due to increased alternative fuel usage, fee income, and sales of surplus carbon emission rights.”

The cost reduction investment effect is considered to be just beginning. Researcher Park stated, “Out of the total four circular resource processing facilities, one began operation in January. Comparing the cumulative EBITDA of the first half of last year (183 billion KRW) to this year’s first half EBITDA of 202 billion KRW, there was an improvement of about 19 billion KRW. If the remaining three facilities are completed and fully operational in the second half, all four facilities will be running normally in 2021, and the EBITDA improvement effect is expected to reach 70 to 90 billion KRW.”

The investment opinion and target price were maintained at ‘Buy’ and 9,000 KRW, respectively. Researcher Park analyzed, “Recently, interest in high-growth stocks has diverted attention away from stable, high-dividend stocks like Ssangyong Cement, resulting in somewhat sluggish stock performance. However, the cost reduction investment effect is being fully realized, and at the same time, the government’s recent announcements on new housing supply through new land development and the rapid execution of civil engineering orders, which were sluggish in the first half, suggest that shipment volume is likely to rebound in 2021.” She added, “In the second half, an environment more favorable to B2B building materials than B2C building materials is expected to be created, and Ssangyong Cement stands out further as additional improvements in profit margins are anticipated.”