[Click eStock] "SeAH Besteel, Front Industry Demand Recovery... Target Price Up 21%"

Hana Financial Investment Report

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained its buy rating on SeAH Besteel on the 23rd and raised the target price by about 21% to 40,000 KRW.

SeAH Besteel's standalone sales and operating profit for the second quarter are expected to reach 539.2 billion KRW and 41.2 billion KRW respectively, marking increases of 95% and 465% compared to the same period last year. Seongbong Park, a researcher at Hana Financial Investment, said, “The total special steel sales volume increased by 80% year-on-year to 508,000 tons due to the recovery of domestic and overseas front-end businesses, and the resulting fixed cost reduction effect is expected to positively impact operating profit, which is anticipated to exceed the market estimate of 39.6 billion KRW.”

Regarding the special steel spread, an increase of 83,000 KRW per ton in the average selling price is expected, but due to the rise in scrap steel prices, it is predicted to remain at a level similar to the previous quarter. For SeAH Changwon Special Steel, operating profit on a consolidated basis is expected to reach 63.3 billion KRW, a 232% increase year-on-year, as the rise in nickel prices is passed on to the selling price.

Standalone operating profit for the third quarter is expected to turn positive at 30.4 billion KRW. As scrap steel prices continue to rise, SeAH Besteel is predicted to implement an additional price increase for special steel next month. SeAH Besteel has already announced a price increase of 120,000 to 150,000 KRW per ton for June. Researcher Park said, “Since China fully abolished the special steel export tax rebate cancellation starting in May, the decline in Chinese imports is expected to continue,” adding, “Due to tight domestic supply and demand, the conversion of raw material price increases into selling prices is expected to proceed smoothly.”

Researcher Park explained, “Demand in domestic and overseas front-end industries is recovering faster than expected, and considering the forecasted decrease in Chinese imports, favorable operating performance is expected through the second half of the year,” adding, “The current stock price is undervalued, trading at a price-to-book ratio (PBR) of 0.6 times, considering this year’s expected return on equity (ROE) of 8.9%.”