[Click eStock] "Dongkuk Steel, Dividend Appeal Up... Target Price Maintained"

On the 28th, SK Securities maintained its buy rating and target price of 16,000 KRW for Dongkuk Steel, citing its "overwhelming dividend attractiveness." The previous trading day's closing price was 8,410 KRW.

On the same day, SK Securities analyst Lee Gyu-ik stated, "We considered that the annual dividend yield at the current stock price level approaches 8-9%."

However, Dongkuk Steel's performance has been hampered by a sluggish market environment. Although Dongkuk Steel's profitability remains solid compared to competitors, the market conditions are considered the toughest in the last 14 to 15 years. In particular, the thick plate segment is facing a double burden of rising costs and weak demand.

In the third quarter of this year, sales amounted to 838.6 billion KRW, and operating profit was 21.5 billion KRW, down 22.3% and 79.6% respectively from the same period last year. Sales volume decreased by 13.6% to 860,000 tons. The analyst noted, "While sales volume in the thick plate segment remained steady, sales volume of long products was sluggish due to a downturn in the domestic construction market and seasonal effects. Both long products and thick plate prices are estimated to have declined. Only the long products segment maintained its spread (the difference between cost and selling price), whereas the thick plate segment deteriorated."

For the fourth quarter, sales are expected to be 853.7 billion KRW and operating profit 22.2 billion KRW, down 16.2% and 76.6% respectively from the same period last year. The analyst predicted, "Although sales volume will slightly improve as the off-season effect is removed, long product prices will decline in the fourth quarter due to the recent sharp drop in rebar prices. Continued production cuts by steelmakers and falling scrap steel prices will also exert downward pressure on long product prices." He added, "Thick plate prices are expected to remain relatively firm, but profitability will further deteriorate due to the recent strong won exchange rate, which inevitably raises the cost of imported slabs (semi-finished steel products)."

Nevertheless, the analyst added, "If the recently initiated anti-dumping tariff complaint on Chinese thick plates succeeds, the situation is expected to improve. In that case, Dongkuk Steel would be the biggest beneficiary."