[Click eStock] "Pungsan, Significant Earnings Improvement Expected in Q2... Target Price Maintained"

Lower Burden Compared to Defense Companies in Stock Price and PBR Levels
Profitability Improvement from Rising Copper Prices and Metal-Related Gains
Growth Outlook for Copper Demand in Electric Vehicles and AI Data Centers

Hana Securities analyzed on the 27th that Pungsan is expected to see a significant improvement in operating performance in the second quarter. The investment opinion 'Buy' and the target stock price of 80,000 won were maintained. Pungsan's closing price on the previous trading day was 62,400 won.

Seongbong Park, a researcher at Hana Securities, said, "The current stock price is at a price-to-book ratio (PBR) of about 0.8 times, which is not a burdensome level compared to this year's expected return on equity (ROE) of 11.9% and other domestic defense companies."

Pungsan's sales and operating profit for the second quarter of 2024 are expected to be 1.2 trillion won and 124.3 billion won, respectively. This is expected to exceed the market consensus (average forecast) of 119.3 billion won. The main factors include a similar refined copper sales volume (46,000 tons) to the previous quarter, about 20 billion won in metal-related profits due to the rise in the average LME copper price in the second quarter (9,780 dollars), and defense sales of 331.4 billion won expected from export expansion. In addition, profitability improvement of the overseas key subsidiary PMX is anticipated due to the rise in copper prices.

Researcher Park said, "In the third quarter, the LME copper price is expected to be slightly adjusted," adding, "After reaching an all-time high of 11,000 dollars/ton in mid-last month, it has been adjusted to the mid-9,000 dollars as of the end of June." This is judged to be due to the fact that despite the March agreement among Chinese copper smelters to cut production, China's copper production in April increased by 9.2% year-on-year, copper exports expanded significantly confirming the oversupply of copper in China, and Chinese manufacturers' purchase suspensions due to the price surge have recently contributed to the copper price decline. China's copper exports in May nearly doubled year-on-year to 150,000 tons, and copper inventories at the Shanghai Futures Exchange reached 330,000 tons, the highest since 2020.

In the mid to long term, new markets such as electric vehicles and AI data centers are expected to drive the growth of copper demand. However, in the short term, with prices having risen close to an all-time high, the recovery of China's physical demand is expected to determine the direction of copper prices. The expected average copper price for the third quarter is 9,500 dollars/ton, and Pungsan's operating profit for the third quarter is forecasted to be 60.5 billion won.