[Click eStock] "Dongkuk Steel, Efforts to Improve Profitability Will Gradually Be Reflected"

Buy Rating and Target Price Maintained

Hana Securities maintained a buy rating and a target price of 15,000 KRW for Dongkuk Steel on the 20th, stating, "Although the industry downturn is prolonged, the strengthening of import regulations on Chinese plate products and steelmakers' efforts to improve profitability are gradually being reflected in the market." The previous trading day's closing price was 8,470 KRW.

On the same day, Seongbong Park, a researcher at Hana Securities, said, "The current stock price is at a price-to-book ratio (PBR) of 0.24, which is still undervalued considering the expected return on equity (ROE) of 4.1% this year."

Last year's fourth quarter sales of Dongkuk Steel are expected to be 844.3 billion KRW, and operating profit 4.2 billion KRW, down 24.8% and 94.6% respectively compared to the same period last year. Researcher Park noted, "Due to sluggish domestic demand caused by the downturn in the construction market, sales volumes of long products and plates are expected to be 675,000 tons and 195,000 tons respectively," adding, "With the decline in steel scrap prices, the input cost of raw materials for electric arc furnaces is expected to decrease, while the average selling prices (ASP) of both rebar-included long products and sections have fallen."

He further explained, "In particular, the ASP of sections is expected to decline more than the raw material input cost, so the overall long product spread (difference between product price and cost) is estimated to have slightly narrowed compared to the previous quarter," and "plates are also expected to see a spread contraction compared to the previous quarter due to increased cost burdens from the rising won-dollar exchange rate." The payment of performance bonuses amounting to approximately 14 billion KRW was also seen as a significant factor worsening overall profitability.

However, the possibility of further spread contraction in the first quarter of this year is expected to be limited. Researcher Park said, "As domestic demand for long products continues to be sluggish, steelmakers are expanding efforts to improve profitability," adding, "Dongkuk Steel has expressed its position from this month to maintain a minimum closing price of 700,000 KRW per ton for rebar to distributors and not to apply exceptions such as discounts." Regarding plates, since the government is conducting an anti-dumping (AD) investigation on Chinese plates, it is expected that if a high tariff rate is imposed based on the investigation results, the company's price negotiation power with shipyards will improve.