[Click eStock] "Poongsan Expected to Underperform in Q3 Amid U.S. Tariff Uncertainty"

Need to Monitor Future Tariff Costs
Expectations for Expanded Earnings in Copper Division
Robust Medium- to Long-Term Outlook for Defense Sector

Poongsan is expected to post third-quarter results that fall short of expectations this year, mainly due to the impact of U.S. tariffs and sluggish metal gain (the price difference between rising metal prices and inventory purchase costs). However, analysts say that the outlook remains solid in the medium to long term, as the ammunition and artillery shell markets are robust and demand for copper from artificial intelligence (AI) data centers remains strong.

On October 20, Meritz Securities projected that Poongsan would record consolidated sales of 1.176 trillion won and operating profit of 61.9 billion won for the third quarter of this year. While sales are expected to rise by 4.1% year-on-year, operating profit is forecast to decline by 16.7%, indicating somewhat lackluster performance. These figures also fall significantly short of the market consensus, which anticipated sales of 1.2344 trillion won and operating profit of 81.9 billion won.

The primary reasons cited are the impact of U.S. tariffs and weak metal gain. The U.S. tariffs are incurred when Poongsan sells small-caliber ammunition produced at its Busan Angang plant to its U.S. subsidiary, PMC. In the previous quarter, costs of about 5 billion won, equivalent to 10.6% of PMC’s sales, were already incurred. If these costs are not passed on to customers, Poongsan must absorb expenses of around 5 billion won per quarter.

The performance of the fabricated copper products division is also expected to be weak, as the copper price (with a one-month lag, based on the Korean won) fell slightly from 13.54 million won per ton in the second quarter to 13.46 million won per ton in the third quarter, resulting in no metal gain. Unlike the first and second quarters, a downturn appears unavoidable. However, with the recent rise in the won-dollar exchange rate and copper prices, there is a possibility that profits from the fabricated copper products division could expand significantly in the fourth quarter.

The medium- to long-term outlook for the defense sector remains strong. Considering the 10 billion won provision for ordinary wage payments in the previous quarter, export margins are evaluated at a solid 31%. While there may be deferred sales due to differences in quarterly delivery timing, analysts believe the company can fully achieve its annual performance targets.

Jang Jaehyuk, a researcher at Meritz Securities, stated, "With the timing of year-end and early-year copper benchmark treatment charge (TC) negotiations and increasing demand from AI data centers, supply shortages could again come into focus, so it is more important to monitor the upside risk to prices rather than the downside. There is a high likelihood of a surprise performance in the fabricated copper products division, and continued strength in the defense sector also leaves room for further improvement in the results of Poongsan FNS."

On the 2nd, at the 'Korea International Defense Industry Exhibition' held at Gyeryongdae in Chungnam, Poongsan's tank shells and naval artillery shells were displayed. Photo by Kang Jinhyung aymsdream@