Concerns Over Slowdown Next Year After Reaching Peak
POSCO Falls 5.1% This Month
[Asia Economy Reporter Park Jihwan] Steel stocks, which had been soaring in the first half of this year, are struggling to avoid sluggishness. This is interpreted as reflecting concerns that the industry will decline after reaching its peak despite announcing record-breaking earnings.
According to the Korea Exchange on the 23rd, POSCO's stock price has fallen 5.1% since the beginning of this month until the day before. During the same period, Hyundai Steel also dropped 7.1%. Compared to the yearly high on May 11, they have fallen 31.4% and 33.3%, respectively.
The weakness in steel stocks reflects concerns that this year's performance has peaked and will slow down starting next year. POSCO recorded an operating profit of 3.1167 trillion KRW in the third quarter, achieving over 3 trillion KRW for the first time in history. Hyundai Steel also earned 826.2 billion KRW, setting a record for the highest performance for two consecutive quarters.
However, securities firms commonly expect that while steel companies' sales will increase next year, operating profits will decline.
According to financial information provider FnGuide, POSCO's annual sales and operating profit for this year are expected to be 75.3715 trillion KRW and 9.3264 trillion KRW, respectively. Next year's sales are forecasted to increase by 3% to 77.7173 trillion KRW, but operating profit is expected to decrease by 10.4% to 8.4471 trillion KRW compared to this year. Hyundai Steel's annual sales are also expected to rise 7.5% from 23.0836 trillion KRW this year to 24.9591 trillion KRW next year, but operating profit is projected to decline by 4.6% from 2.5065 trillion KRW to 2.3954 trillion KRW.
However, market experts analyze that considering the current valuation (price level relative to earnings) of steel stocks, these concerns are excessive. Currently, POSCO's 12-month forward price-to-earnings ratio (PER) is about 3.7 times, and Hyundai Steel's is about 3.3 times. Bang Minjin, a researcher at Eugene Investment & Securities, stated, "POSCO's current stock price indicates that the market is anticipating a significant profit reduction due to a slowdown in China's demand momentum, but the steep decline phase in China's demand has already passed," adding, "Hyundai Steel is also expected to see a stock price rerating as the market builds confidence in the sustainability of the industry."
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