[Click eStock] "KG ETS, Both Steel and Bio Sectors Are Strong"

Hana Financial Investment Report
Target Price 18,500 KRW

[Asia Economy Reporter Minji Lee] Hana Financial Investment on the 14th issued a buy rating and a target price of 18,500 KRW for KG ETS. This is based on the expectation of an upward revision in corporate value due to structural external growth in the steel sector and a performance turnaround in the bio sector.

KG ETS is a domestic waste treatment specialist company, with business areas divided into environmental energy, bio, and new materials sectors. Its consolidated subsidiaries include KG Dongbu Steel and KG GNS, which operate in the steel and port industries. Lee Jung-ki, a researcher at Hana Financial Investment, said, “The target price was calculated by summing the operating value of the energy business division of the parent company and the equity value of subsidiaries engaged in steel and port businesses, then deducting net debt,” adding, “The current stock price of KG ETS is undervalued even when considering only the equity value of its subsidiaries.”

Following the additional acquisition of shares in KG Steel at the end of last year (from 48% to 51%), KG ETS began consolidated recognition of the performance of subsidiaries such as KG Dongbu Steel from the first quarter of this year. The value of the holdings currently exceeds 370 billion KRW based solely on the market price of KG Dongbu Steel. Considering the expected increase in steel sector sales prices this year, structural external growth in the steel sector is also anticipated.

The bio sector is also expected to enter a performance turnaround phase due to the continuous expansion of the Renewable Portfolio Standard (RPS) and the increase in bio-heavy oil prices caused by raw material supply difficulties. Researcher Lee Jung-ki analyzed, “With the Ministry of Trade, Industry and Energy’s upward adjustment of the RPS cap, the expected bio-heavy oil sales volume this year is 76,000 tons, a 20% increase compared to the same period last year,” and “Operating profit margin (OPM) is expected to grow from -1% last year to 8.1% due to price increases caused by the supply shortage of palm oil, the key raw material for bio-heavy oil.”

The expected sales for this year are estimated at 2.9426 trillion KRW, and operating profit at 234 billion KRW, representing increases of 1812% and 1125% respectively compared to the same period last year. Researcher Lee Jung-ki stated, “This year’s performance will be influenced by the increase in steel sheet prices due to the global steel supply shortage and the performance turnaround in the bio sector due to the rise in bio-heavy oil prices,” adding, “The environmental energy sector is also expected to contribute to KG ETS’s growth and profitability improvement, as the designated waste treatment price has been on an upward trend annually, and steam sales to the Siwha industrial complex are predicted to increase by more than 30% compared to the same period last year due to the base effect of COVID-19.”