Ssangyong Cement Reflects Fuel Cost Savings from Facility Investment... Expects Favorable Performance

[Asia Economy Reporter Minji Lee] There is an opinion that Ssangyong Cement can deliver favorable performance this year due to the installation of a recycled resource processing facility and the effect of a decline in the price of thermal coal. Accordingly, on the 9th, NH Investment & Securities maintained a buy rating and a target price of 6,500 KRW for Ssangyong Cement.

In the first quarter, the company recorded consolidated sales of 313.9 billion KRW, a 7% decrease compared to the previous year. Operating profit was 30.7 billion KRW, a 43% increase during the same period.

Minjae Lee, a researcher at NH Investment & Securities, explained, “The base effect appeared as the one-time cost (9 billion KRW) incurred in the first quarter of last year was eliminated,” adding, “The decline in thermal coal prices and cost reduction effects from the operation of the recycled resource processing facility also appeared.”

The fuel cost reduction effect is expected to continue in the second quarter as well. Sales in the second quarter are expected to be 385.4 billion KRW, and operating profit is expected to be 79.5 billion KRW, down 9% and 6%, respectively.

This year, domestic cement shipments are estimated to decrease by 6% from the previous year to 46 million tons. The impact of the novel coronavirus infection (COVID-19) is limited, and most construction sites are presumed to be operating normally. Furthermore, in the mid to long term, large projects such as the construction of the 3rd new town and transportation infrastructure projects like GTX are expected to have a positive effect on the cement industry.

Investment effects for reducing fuel costs such as thermal coal and electricity costs are also anticipated. In addition to waste heat recovery power generation and energy storage systems (ESS) operated since 2018, the effect of installing recycled resource processing facilities from 2020 is expected to appear.

The recycled resource processing facility began operation of one out of four units in January 2020, and if all four units operate at 100%, an annual EBITA improvement effect of over 60 billion KRW is expected.

Researcher Minjae Lee said, “The estimated dividend per share this year is 440 KRW, which corresponds to a dividend yield of about 8.5% based on the current closing price,” adding, “The company decides dividends based on EBITA, and this year’s payout ratio is about 55% of EBITA.”

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