[Click eStock] "Dongyang Estech, Significantly Undervalued Compared to Daedong Steel and Buguk Steel in the Steel Industry"

'Hidden Pearl' in the Steel Industry... Revaluation Imminent
Steel Prices Rise Due to China's Export VAT Refund Abolition
Focus on Spread Increase at POSCO-Designated Hot Rolled Sales Agencies

[Asia Economy Reporter Hyungsoo Park] Research Alom analyzed on the 10th that Dongyang Estech is a "hidden pearl" in the steel industry and is significantly undervalued compared to other POSCO hot-rolled processing companies. It suggested a fair stock price of 6,060 KRW. Dongyang Estech is a processing center of POSCO that processes and sells hot-rolled steel plates and thick plates produced by POSCO.

Choi Seonghwan, senior researcher at Research Alom, explained, "Recently, as the distribution prices of hot-rolled steel plates and thick plates have surged, a revaluation is underway across POSCO processing centers," adding, "According to the Korea Iron & Steel Association, the domestic hot-rolled distribution price is 1.1 million KRW per ton, up 66.7% compared to the previous year."

He continued, "With China announcing the abolition of the 'steel export VAT rebate' from May 1, the upward trend in steel prices is expected to continue through the second half of this year."

The VAT rebate is a refund of value-added tax on steel exports, acting as a kind of export subsidy that enhanced the competitiveness of Chinese steel.

Researcher Choi said, "From the demand side, the reasons for the global steel price increase are supported," and analyzed, "According to the World Steel Association, global steel demand this year is 1.87 billion tons, and due to economic recovery and infrastructure investment in China and the United States, as well as a strong recovery in the automotive industry, steel demand is expected to increase."

He emphasized, "Dongyang Estech's market capitalization is significantly discounted compared to other POSCO hot-rolled processing companies, and it is time for revaluation," noting that "in terms of operating profit size, it has a smaller market capitalization than Daedong Steel, Munbae Steel, Buguk Steel, and Samhyeon Steel."

He added, "Even considering that its market share is lower than other companies, it is judged to be excessively undervalued," explaining, "Daedong Steel and Buguk Steel have current market capitalization to last year's operating profit ratios of 70 times and 59 times respectively, but Dongyang Estech is at 14 times, indicating significant undervaluation."

Researcher Choi also said, "Dongyang Estech can achieve synergistic growth not only in the steel business but also in subsidiaries such as eco-friendly construction waste intermediate treatment," adding, "Additional premiums can be applied."

On a consolidated basis, Dongyang Estech is estimated to achieve sales of 241.5 billion KRW and operating profit of 11 billion KRW this year, increases of 29.3% and 139.1% respectively compared to last year.

Researcher Choi analyzed, "It is expected to achieve record-high performance this year," adding, "The expansion of price spreads for hot-rolled steel plates and thick plates and increased steel demand are major performance momentum factors."