[Click eStock] POSCO, Stock Adjustment Due to Q2 Earnings Slump... Will It Be a Buying Opportunity?

[Asia Economy Reporter Eunmo Koo] Cape Investment & Securities forecasted that POSCO is expected to report weak earnings in the second quarter of this year. However, considering that the stock price outperformed the market since the steel real demand indicator turned positive, the pace of price increases for high value-added products such as automobiles may be slow, but demand improvement expectations could be reflected starting from the third quarter. It is analyzed that the stock price adjustment due to poor earnings could be a buying opportunity.

Researcher Misong Kim of Cape Investment & Securities estimated in a report on the 30th that POSCO’s separate basis operating loss for the second quarter will turn to a deficit of 20 billion KRW. This is explained by a decrease in production volume due to the maintenance of the Gwangyang No.3 blast furnace, which increased fixed cost burdens, and a narrowing spread due to price declines. Researcher Kim forecasted, “Sales volume is expected to increase to 7.8 million tons, higher than previously expected, but profitability will worsen due to changes in product mix caused by sluggishness in high value-added downstream industries such as automobiles due to the impact of COVID-19.” Additionally, although iron ore prices rose, coking coal prices fell, so costs are expected to be similar to the previous quarter.

On a consolidated basis, the profit contribution from subsidiaries is expected to decrease compared to the previous quarter. Researcher Kim said, “Steel subsidiaries will be sluggish like the separate basis and will contribute to operating losses following the previous quarter,” and added, “POSCO Engineering & Construction will maintain a favorable trend as plant losses were settled last year, but POSCO Chemical is expected to perform poorly in POSCO-related businesses such as refractories, quicklime, and roasting maintenance due to delayed normal operation of the Gwangyang No.3 blast furnace.” Furthermore, “POSCO International’s gas field business is not expected to be significantly affected despite the drop in oil prices because the annual average is applied, but operating profit is expected to decrease compared to the previous quarter due to reduced trading volume,” she predicted.

The investment opinion and target stock price were maintained at ‘Buy’ and 230,000 KRW, respectively. Researcher Kim explained, “The stock price did not outperform the market for a month, reflecting the deterioration in demand due to the US-China trade dispute and the impact of COVID-19,” and added, “Compared to the 2008 financial crisis when demand was negative, considering that the stock price outperformed the market from the time when China’s real demand indicators such as new housing starts and land purchase areas turned positive, that time is not far away.”

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