[Click e Stocks] "Poongsan, Profit Decline Expected but Focus on Copper Prices... Target Price Down"

[Asia Economy Reporter Song Hwajeong] NH Investment & Securities on the 20th lowered the target price for Poongsan from 50,000 KRW to 45,000 KRW, anticipating a decrease in profits this year. The investment rating was maintained at 'Buy.'

Byun Jongman, a researcher at NH Investment & Securities, explained, "The target price downgrade is due to a 10.6% and 8.1% reduction in the earnings per share (EPS) forecasts for 2022 and 2023, respectively," adding, "This is because a reduced increase in copper prices is expected to lead to a decline in profits in the non-ferrous metal business." He further stated, "Although the target price was lowered, we expect the stock price to rise due to the stabilization of defense sales and strong copper prices at a low valuation multiple (2022 expected PER 8.1 times, PBR 0.5 times)."

NH Investment & Securities projected Poongsan's consolidated performance for this year to be sales of 3.6155 trillion KRW, a 3.2% increase from the previous year, and operating profit of 187.5 billion KRW, a 41.3% decrease. Researcher Byun said, "We expect strong copper prices because inventory shortages and supply increases will not be rapid," but added, "However, in Poongsan's profit structure, the extent of the copper price increase is important. While the average annual copper price rose 50.8% in 2021, it is forecasted to rise only 5.1% this year, so a profit decline in the non-ferrous metal business is expected."

Poongsan's fourth-quarter results last year are expected to slightly miss market consensus. NH Investment & Securities estimated Poongsan's consolidated sales for Q4 last year at 969.1 billion KRW, a 21.3% increase year-on-year, and operating profit at 69.7 billion KRW, a 30.3% increase. These figures are 3.6% and 5.4% below consensus, respectively. Researcher Byun explained, "The London Metal Exchange (LME) copper price rose from $8,945 at the end of September to $11,300 on October 18, which likely generated related profits," adding, "Sales volume in the non-ferrous division is estimated to have exceeded 47,000 tons, indicating a favorable operating situation, and defense division sales are expected to have increased by 8.0% to 290.8 billion KRW."