[Click eStock] "SeAH Steel, Positive on Expanding Wind Power and LNG Pipe Production Capacity"

Cape Investment & Securities Report

[Asia Economy Reporter Minji Lee] Cape Investment & Securities on the 22nd issued a buy rating and a target price of 120,000 KRW for SeAH Steel, citing the expansion of production capacity for offshore wind power and LNG steel pipes.

In the third quarter, SeAH Steel recorded an operating profit of 36.1 billion KRW and an operating margin of 9.9%, maintaining profitability at a level similar to the previous quarter (36.3 billion KRW, 10.1%). Despite being a quarter with reduced sales due to the rainy season and holidays, quarterly production reached 184,000 tons. The sales ratio was 53% domestic and 47% export.

Researcher Misong Kim of Cape Investment & Securities explained, “Exports to the U.S. have decreased since 2018 and have maintained a quarterly level of 60,000 to 70,000 tons,” adding, “The domestic market rapidly recovered this year after the market downturn caused by COVID-19, which also contributed to the favorable performance.”

Steel demand has passed its peak, and product prices are declining. Amid debates over the peak of steel prices and a decrease in inventory stocking demand, distributors are releasing their stock, causing product prices to fall excessively, but actual demand remains low. However, the decline in the spread is expected to be limited. Researcher Kim said, “In the past, when concerns about demand slowdown increased, steel pipe companies immediately lowered prices, but now they are maintaining prices,” and explained, “After concerns about demand slowdown from China subside, the possibility of product price declines beyond the cost reduction is low.”

Currently, one roll bender is used for offshore wind power steel pipes, and with the addition of one more unit, total production capacity is expected to expand to 60,000 tons. It is anticipated that there will be a sales gap for offshore wind power until the first half of next year due to COVID-19 and financial burdens on ordering companies. Major ordering markets include Taiwan, the UK, and France, with orders expected to begin in the second half of 2022.

The company is also expanding production capacity for stainless steel pipes used in LNG terminals. Previously, it had a production capacity of 20,000 tons and plans to expand to 60,000 tons with an investment of 20 billion KRW. Previously, the type was roll press bending, but the new facility will be roll forming type, with LNG orders expected from Qatar and others. Researcher Misong Kim added, “The expansion of production capacity for offshore wind power and LNG steel pipes is a positive factor that can be reflected in the stock price as it lays the foundation for growth.”