[Click eStock] SeAH Steel, Record-Breaking Q1 Performance with PER of 3 Times "Target Price Up"

[Asia Economy Reporter Lee Seon-ae] Hana Financial Investment maintained its buy rating on SeAH Steel on the 17th but raised the target price from the previous 200,000 KRW to 250,000 KRW, reflecting an upward revision of this year's earnings estimates.

Seongbong Park, a researcher at Hana Financial Investment, stated, "In the second quarter, profit expansion is expected due to increased domestic sales volume and the rise in the KRW-USD exchange rate. Additionally, orders for offshore wind power and LNG terminals are expected to increase in the second half of the year." He emphasized, "The current stock price is at a price-to-earnings ratio (PER) of 3 times and a price-to-book ratio (PBR) of 0.6 times. Considering this year's expected return on equity (ROE) of 22.7%, it is still judged to be significantly undervalued."

In the first quarter of 2022, SeAH Steel's sales and operating profit were 448.8 billion KRW and 59.9 billion KRW, respectively, representing increases of 39.5% and 280.5% compared to the previous year. The previous highest operating profit was 71.7 billion KRW in the second quarter of 2008, which was before the division of the plate business segment, so this is effectively the highest ever.

The total steel pipe sales volume recorded 209,000 tons (-9.1%), similar to the previous quarter. Despite domestic steel pipe spreads shrinking due to sluggish domestic demand in the first quarter, exports saw a surge in demand for energy steel pipes in the U.S., leading to increased domestic prices in the U.S. and a rise in the KRW-USD exchange rate. This pushed the margin rate close to the high teens, driving an earnings surprise.

Since the second half of last year, global energy prices have continuously risen, rapidly expanding traditional energy development projects in the U.S. The number of oil drilling rigs in the U.S. increased by 20% this year and nearly 60% over the past year. Moreover, the U.S. banned imports of Russian steel pipes, tightening the supply and demand of energy steel pipes domestically. As a result, Korea's energy steel pipe exports in the first quarter increased by 31.8% year-on-year. Notably, despite a decline in the price of hot-rolled steel, the raw material, export prices rose in the first quarter, indicating tight supply and demand for energy steel pipes in the U.S. High oil prices and the U.S. ban on Russian steel pipe imports are expected to maintain tight supply and demand for North American energy steel pipes in the second half of the year.