[Click eStock] "Korea Zinc Falls Short of Earnings Expectations... Target Price Down"

[Asia Economy Reporter Son Sunhee] Kiwoom Securities announced on the 6th that it is lowering the target price for Korea Zinc from the previous 750,000 KRW to 690,000 KRW. However, the investment opinion remains a buy from a mid- to long-term growth perspective.

Korea Zinc's operating profit in the fourth quarter of last year was 105.5 billion KRW, down 63% compared to the same period last year. This figure significantly missed market expectations (182.7 billion KRW). Although sales volume of zinc and lead increased sharply compared to the third quarter, meeting revenue expectations, the operating profit margin was only 3.6%.

Researcher Lee Jonghyung of Kiwoom Securities explained, "The headquarters did not fully recover profitability due to various cost increases such as energy costs (20 billion KRW), year-end maintenance costs (9 billion KRW), and a temporary rise in cost of sales (20 billion KRW) caused by metal price fluctuations. Additionally, major consolidated subsidiaries such as Australia SMC (-27.37 million USD) and the US Pedal Point (-23 billion KRW) posted operating profits below expectations."

Nevertheless, one-time gains such as foreign currency debt valuation gains and corporate tax refunds (141 billion KRW) led to net income attributable to controlling shareholders significantly exceeding expectations.

Operating profit for the first quarter of this year is expected to improve to 164.4 billion KRW compared to the fourth quarter of last year. As the temporary cost of sales increase issue caused by metal price fluctuations, one of the reasons for poor performance in the second half of last year, is resolved, profitability is also expected to improve. Australia SMC, which has been recording operating losses since the second half of last year due to delays of over a year in starting new facilities caused by approval issues, plans to reduce losses from the first quarter of this year by increasing zinc production through reactivation of old facilities.

Researcher Lee said, "If the new facility approval and operation proceed within the first half of the year as the company aims, Korea Zinc's quarterly operating profit is expected to normalize to the mid-200 billion KRW range in the second half."

Meanwhile, Lee also noted, "Regardless of the business conditions and performance, it is necessary to keep open the possibility that governance-related issues, which have been continuously highlighted since the second half of last year, such as disclosures of major shareholder and related party share acquisitions, may affect the stock price in the future."