[Click eStock] "Dongkuk Steel, Operating Profit in Second Half Expected at Usual Level... Target Price Downgraded"

[Asia Economy Reporter Hwang Yoon-joo] Yuanta Securities forecasted on the 7th that Dongkuk Steel's operating profit in the second half of the year will be lower compared to the first half. The investment opinion 'Buy' was maintained, but the target stock price was lowered to 25,000 KRW.

Researcher Lee Hyun-soo of Yuanta Securities stated, "Product sales volume is expected to be similar, but the spread for thick plates and cold-rolled products is anticipated to narrow."

Lee analyzed, "The weak steel market conditions in China in the second quarter are expected to affect the domestic and export markets in the third quarter, leading to a decline in selling prices, while raw material input costs such as slab and hot-rolled steel are expected to rise."

He also diagnosed, "The transportation and trade sectors, which achieved better-than-expected consolidated operating profits in the first quarter, are expected to return to their usual operating profit levels as the second half progresses."

Premium color steel sheet exhibition of Dongkuk Steel's 'Brand Luxsteel'.
[Photo by Dongkuk Steel]

Meanwhile, Lee projected the operating profit for the second quarter of this year to be 229 billion KRW, an increase of 10% year-on-year and 11% quarter-on-quarter. The separate basis operating profit for the second quarter is expected to be 213 billion KRW.

Specifically, the sales volume of long products is expected to increase quarter-on-quarter due to seasonal peak demand. Lee analyzed, "Although the input cost of steel scrap is expected to rise compared to the previous quarter, the increase in product selling prices is expected to be greater, leading to an expansion in the spread."

He further explained, "The sales volume of cold-rolled products is expected to slightly increase to around 400,000 tons quarter-on-quarter. Although the export price of Korean color steel sheets in dollar terms declined quarter-on-quarter in the second quarter, the cold-rolled product spread is considered to have improved quarter-on-quarter as the hot-rolled import volume, which declined in the first quarter compared to the fourth quarter of last year, is reflected in the second quarter's cost."

The sales volume of thick plates is expected to be similar to the previous quarter, but the ASP (average selling price) is understood to have risen due to price increases for shipbuilding-related sales.

Lee diagnosed, "Due to the impact of the Cargo Solidarity strike and other factors, the total product sales volume is expected to record 1.59 million tons, below our previous estimate of 1.66 million tons. However, sales volume is expected to increase quarter-on-quarter, and spreads are expanding in major items, so operating profit is also expected to increase."