[Click eStock] "Geumgang Gongup, Raw Material Inflation → Earnings Improvement" Target Price Up

[Asia Economy Reporter Ji Yeon-jin] Hana Financial Investment announced on the 27th that it maintains a buy rating on Geumgang Industrial, expecting performance improvement due to raw material inflation, and raised the target price to 17,800 KRW. The target price was calculated by applying a target price-to-earnings ratio (PER) of 15.8 times to this year's expected earnings per share (EPS) of 1,125 KRW.

Choi Jae-ho, a researcher at Hana Financial Investment, said, "Recently, we revised upward the earnings estimates for the feed segment by reflecting two price increases by the subsidiary Goryeo Industrial due to raw material inflation, and also reflected the quarterly performance expansion phase of the steel pipe division due to raw material cost increases," adding, "Considering the stock performance driven by recent earnings expectations of feed and fertilizer companies, the subsidiary Goryeo Industrial also holds momentum for its Q2 earnings, so attention is needed now." He evaluated that the company's expected PER this year is 9 times, indicating it is still undervalued.

Geumgang Industrial's consolidated sales for Q1 this year are expected to increase by 30.1% year-on-year to 172.3 billion KRW. Operating profit is forecasted to rise 116.3% to 10.7 billion KRW. The panel division is expected to lead external growth with sales of 63.2 billion KRW and operating profit of 6.8 billion KRW, increasing by 61.3% and 1665.4% respectively compared to the same period last year. This is attributed to the continuous increase in building permits and construction area, which are leading and coincident indicators of construction, resulting in an increase in the panel rental price per square meter and rental operation rate to 57,000 KRW and 82%, respectively.

Additionally, the steel pipe division is expected to see sales increase by 21.5% to 38.1 billion KRW and operating profit rise by 41.8% to 1.9 billion KRW due to continuous cost increases. The feed division is also expected to grow with sales of 51.8 billion KRW and operating profit of 0.8 billion KRW, increasing by 7.2% and 1824.3%, respectively. Researcher Choi said, "Since the grain prices, which are raw materials, reflected in the cost are based on prices purchased a year ago, compared to the two price increases made since early this year, the margin spread has entered a phase where it can expand explosively from Q2 onward."

This year's sales are projected to increase by 31.3% to 749.3 billion KRW, and operating profit by 89.6% to 4.9 billion KRW compared to the previous year. Researcher Choi explained, "The structural growth of the panel division due to the real estate construction big cycle, the increase in prices and margins in the feed division due to raw material inflation, and the margin improvement in the steel pipe division due to price increases are the reasons. Especially, the subsidiary Goryeo Industrial is highly likely to implement additional price increases this year due to cost increases, which is expected to significantly contribute to quarterly external growth."