[Click eStock] "Korea Steel, Concerns Over Rebar Supply and Demand Deterioration in Second Half... Target Price Down 8%"

Hana Securities Report

[Asia Economy Reporter Minji Lee] Hana Securities maintained its buy rating on Korea Steel on the 30th but lowered the target price by 8.3% to 11,000 KRW.

In the second quarter, Korea Steel's sales and operating profit were 289.5 billion KRW and 44.3 billion KRW respectively, representing growth of 58% and 21% compared to the same period last year. Despite sluggish rebar sales due to a slowdown in the domestic construction market, the increase in rebar selling prices significantly outpaced the rise in domestic steel scrap prices, greatly expanding the spread, which led to solid operating results. Domestic rebar sales volume was 248,000 tons, down 8% compared to the same period last year.

However, due to the sharp rise in interest rates and increased construction costs in the second half of the year, the housing market is shrinking, and domestic rebar supply and demand are expected to worsen further. The company's operating profit for the third quarter is forecasted to decrease by 22.6% year-on-year to 26.1 billion KRW.

Seongbong Park, a researcher at Hana Securities, said, “Apartment sale prices continue to decline, housing start indicators are sluggish, and unsold units are increasing, so rebar demand is likely to weaken.” He added, “From September, Korea Steel's Chilseo Steelworks is scheduled to begin commercial production, which is expected to act as a factor worsening domestic rebar supply and demand.”

Although the target price was lowered, the reason for maintaining the buy rating is due to undervaluation of the stock price. The current stock price has fallen to the lower end of the band with a price-to-book ratio (PBR) of 0.3 times, and the current market capitalization is below 300 billion KRW. Researcher Park added, “Considering cash assets of 360 billion KRW, the current stock price is undervalued.”