3Q 'Earnings Surprise' POSCO: "Our Core Business Is Reviving"

3Q Earnings Declined YoY but Exceeded Market Expectations by Over 30%
Steel Division Drives Performance Improvement... "Growth to Continue in 4Q"

[Asia Economy Reporter Minwoo Lee] POSCO posted a surprise performance in the third quarter of this year. The improvement in the steel division's performance was attributed to increased sales of high-margin products such as automotive steel.

On the 25th, DB Financial Investment analyzed POSCO's third-quarter results as follows. Earlier, POSCO announced on the 23rd that its consolidated sales for the third quarter of this year reached KRW 14.2612 trillion, with an operating profit of KRW 666.7 billion. Although these figures represent decreases of 10.8% and 35.9% respectively compared to the same period last year, the operating profit exceeded market expectations (consensus) of KRW 495.1 billion by more than 34.7%, leading to an assessment of a 'surprise performance.'

Operating profits by division were KRW 345 billion for steel, KRW 303.8 billion for global infrastructure, and KRW 18.2 billion for new growth sectors. The steel division turned significantly profitable compared to the previous quarter, while the global infrastructure and new growth divisions maintained steady results.

Kim Honggyun, a researcher at DB Financial Investment, explained, "On a standalone basis, operating profit turned positive due to a recovery in sales volume, including increased sales to the automotive sector, which reduced fixed cost burdens and manufacturing costs such as raw materials. Consolidated results also showed significant profitability improvements in overseas steel markets due to market recovery, and the global infrastructure division saw improved energy sector profits, particularly from expanded direct LNG imports and increased capacity charge (CP) rates during the peak electricity season."

In the fourth quarter, performance improvement centered on the steel division is expected as the proportion of high-grade steel increases. Major blast furnace maintenance was completed in the second quarter this year, and while the rise in steel raw material prices will be reflected in results with a lag starting mid-fourth quarter, product price increases have been fully underway since mid-third quarter. Steel consumption is expected to increase as economic stimulus measures expand across various countries. This is why further performance improvements are anticipated in the fourth quarter. However, Kim noted, "Since it will take time for the global COVID-19 situation to stabilize, the global infrastructure division's profitability contribution is expected to decline due to slow global economic recovery and weakening demand in related industries."

Against this backdrop, DB Financial Investment maintained a 'Buy' rating on POSCO and raised the target price by 19.6% to KRW 275,000. The closing price on the previous trading day was KRW 220,000.