Even in the Depressed Cement Market... Ssangyong Cement's Fundamentals Remain 'Strong'

Cement Demand Contracted for 2 Years, Expected to Rise Significantly from 2021
Increase in Apartment Pre-Sale Volume and Government Construction Projects Announced

[Asia Economy Reporter Minwoo Lee] Due to the contraction of the construction market leading to a decrease in cement demand and rising costs, Ssangyong Cement's operating profit is expected to fall by more than 7% compared to the previous year. However, it is maintaining performance through cost reduction effects from investments and exports, indicating that its 'fundamental strength' for a rebound is sufficient. There is a forecast that stock price recovery is possible depending on the improvement of the cement market conditions in the future.

On the 1st, Mirae Asset Daewoo predicted that Ssangyong Cement would achieve sales of 1.545 trillion KRW and operating profit of 228 billion KRW last year. Sales increased by 2.3% compared to the previous year, but operating profit dropped by 7.4%. The stock price also fell by about 25% over the past year.

The biggest concern is interpreted as being due to the decrease in domestic cement demand. Last year, domestic cement shipments in 2019 were 48.4 million tons, down 6% from the previous year. Following a 10% decrease in 2018, this marks two consecutive years of decline. As a capital-intensive industry, a decrease in demand directly leads to an increase in cost ratio. This is why cement demand sensitively affects performance.

The reason for the decrease in cement demand is analyzed to be the decline in apartment pre-sales. Researcher Kwangsoo Lee of Mirae Asset Daewoo explained, "Due to the contraction of the local real estate market and real estate regulations, pre-sales decreased and cement demand fell," adding, "Due to the cumulative decrease in apartment pre-sales, it will be difficult for cement demand to recover this year as well." In fact, the number of apartment pre-sale households nationwide has continuously decreased since recording 520,000 units in 2015 until 2018. The estimated cement shipment volume for this year is 47.5 million tons, expected to decrease by 2% compared to last year.

However, there is a forecast that demand recovery is possible from 2021. This is because the volume of apartment pre-sales is gradually increasing. Last year, the nationwide apartment pre-sale volume was 340,000 units, a 14% increase from the previous year. This year, it is estimated that 372,000 units, 9% more than last year, will be pre-sold. Additionally, government-led expansion of construction projects is a positive factor. The Korea Land and Housing Corporation (LH) announced plans to order construction and service contracts worth about 20.5 trillion KRW this year. This is the largest scale since its establishment and nearly double the 10.3 trillion KRW ordered last year.

Moreover, despite the somewhat gloomy atmosphere, Ssangyong Cement's fundamental strength is said to remain unshaken. Although domestic demand has decreased, it is maintaining operating rates through exports, and the cost reduction effects from investments are partially offsetting the rise in costs. Ssangyong Cement has consistently worked to maintain stable profits through investments such as vertical integration by acquiring Daehan Cement, waste heat power generation facilities, and installation of energy storage systems (ESS), as well as increasing the use of renewable energy. Thanks to this fundamental strength, as of February 27, the dividend yield reached 8.7% (based on the stock price on February 27).

Mirae Asset Daewoo maintained a 'Buy' investment opinion on Ssangyong Cement for these reasons. However, considering short-term performance weakness and changes in the stock market, the target stock price was lowered from the previous 8,300 KRW to 6,900 KRW. The closing price on the 28th of last month was 4,935 KRW.

This content was produced with the assistance of AI translation services.