[Click eStock] Poongsan Expected to See Continued Growth in Defense Sales... Target Price Raised

Target Price Doubled from 80,000 Won to 160,000 Won
Hana Securities Expects Long-Term Defense Sales Growth for Poongsan

On August 4, Hana Securities stated that it maintains its 'Buy' investment opinion on Poongsan, expecting "continued growth in defense sales over the long term," and raised its target price from 80,000 won to 160,000 won.

Park Sungbong, a researcher at Hana Securities, explained, "With the defense division's profit now accounting for more than half of the company's total profit, we applied a target PBR of 1.8 times, assuming defense sales will continue to grow steadily in the future." He also noted, "In the short term, copper prices are expected to remain stable."

For the third quarter, operating profit is projected to reach only 63.5 billion won due to a decrease in defense exports and weak copper prices. This represents a 14.6% decrease compared to the same period last year and a 32.2% decrease from the previous quarter. Park explained, "As ores, concentrates, copper scrap, matte, and refined copper have been exempted from tariffs, copper prices turned weak toward the end of last month." He added, "In particular, due to concerns over U.S. copper tariffs, copper imports to the U.S. have surged this year, resulting in excess copper inventory in the U.S. reaching 400,000 to 500,000 tons, which is equivalent to half of the country's annual demand. Unless there is a full recovery in demand from China, it will be difficult for copper prices to rebound."

In the second quarter, Poongsan's consolidated sales reached 1.3 trillion won, up 4.9% year-on-year and 11.9% quarter-on-quarter. However, operating profit was 93.6 billion won, down 42.0% year-on-year but up 34.3% from the previous quarter. Operating profit fell short of the market consensus of 113 billion won.

Park noted, "Sales volume of fabricated copper products increased, mainly for automobiles and ESS, and with the average LME copper price at $9,524 in the second quarter, metal-related profits of 2.5 billion won were generated." In the defense division, sales reached 345.4 billion won, up 2.5% year-on-year and 69.6% quarter-on-quarter. He said, "Despite a decline in sports ammunition exports to the U.S. due to tariff uncertainties, the expansion of exports of other military products and solid domestic sales had a positive impact." However, he also assessed, "The profit margin fell from 28% in the same period last year to 21% due to an increased domestic sales proportion and a reduction in high-margin product mix."

Additionally, he added, "Labor costs related to ordinary wages amounting to 15 billion won and additional subsidiary costs due to U.S. tariffs negatively affected the results."