[Click eStock] POSCO Expected to Achieve Record-Breaking 3Q Performance Again

[Asia Economy Reporter Junho Hwang] Hana Financial Investment maintained its investment opinion (buy) and target price (KRW 500,000 per share) on the 28th, forecasting that POSCO will record its highest-ever quarterly performance again in the third quarter of this year.

Hana Financial Investment expected POSCO's separate sales and operating profit for the third quarter of this year to reach KRW 10.8 trillion and KRW 2.2 trillion, respectively. Sales are projected to increase by 64.8% year-on-year, and operating profit by 734.3%.

Due to the high level of iron ore prices until July, POSCO's raw material input cost in the third quarter is expected to rise by about KRW 80,000 per ton. However, aggressive price increase policies for major plate products, including shipbuilding plates, were accepted. Accordingly, the ASP of carbon steel is expected to rise by about KRW 144,000 per ton, anticipating a much larger spread expansion than initially expected. Considering the firm sales volume (8.9 million tons, a 0.1% increase year-on-year) due to the strong global steel demand, operating profit is expected to significantly exceed the market consensus of KRW 1.9 trillion.

China's crude steel production is also favorable. Last month, China's crude steel production recorded 83.42 million tons, a sharp decline of 13.2% compared to the same period last year, which is the lowest level since March last year excluding February, which had fewer operating days. Following a -7% in July, August also confirmed a full-scale steel production cut trend to reduce carbon emissions. The intensity of production cuts is expected to expand further toward the end of the year, with local cities that fall significantly short of energy consumption reduction targets expected to be at the center of the cuts.

However, concerns have emerged about a slowdown in Chinese steel demand centered on construction products due to the recent spotlight on Evergrande Group risks. Nevertheless, the tight steel supply and demand in China is expected to continue due to supply reductions that exceed these concerns. At the same time, although China's iron ore import price recently fell to around USD 110 per ton, the price of coking coal has nearly doubled in the past month, limiting the possibility of price reductions that the market worries about.

Seongbong Park, a researcher at Hana Financial Investment, analyzed, "Record-breaking quarterly performance continues, and the tight steel supply and demand in China is also expected to persist, which will act as a factor improving POSCO's profitability," adding, "Despite this situation, POSCO's current stock price is at a PBR of 0.6 times, and considering the expected ROE of 13.5% this year, it is judged to be significantly undervalued."