[Click eStock] "SeAH Besteel, Worst Case Scenario Passed... Target Price Up 24%"

Kiwoom Securities Report
"Reduction in Deficit Scale through Cost Reduction and Expansion of High-Value-Added Product Sales"

[Asia Economy Reporter Minji Lee] Kiwoom Securities on the 11th raised its investment opinion on SeAH Besteel to Outperform (exceeding average returns) and increased the target stock price by 24% from the previous level to 13,000 KRW, stating that the deterioration in profitability is showing signs of stabilization.

In the second quarter, SeAH Besteel recorded a consolidated operating profit of 18.5 billion KRW, down 25% compared to the same period last year. This significantly exceeded the market's expected operating loss of 2.9 billion KRW, turning profitable after four quarters. Net profit recorded a loss of 600 million KRW due to an increase in the effective corporate tax rate.

Researcher Jonghyung Lee of Kiwoom Securities said, “Although the sales volume of special steel sharply declined by 40% to 2.82 million tons compared to the same period last year due to the contraction of demand industries caused by COVID-19, profitability improved through active roll margin defense and cost reduction,” adding, “The large forging business also reduced its deficit by more than half due to price normalization following eased competition and expanded sales of high value-added products such as CASK (Used Nuclear Fuel Storage Containers).”

The combined operating profit of subsidiaries such as SeAH Changwon Special Steel also recorded 11.7 billion KRW, down 22% from the same period last year due to the impact of COVID-19, but it is considered to be at a satisfactory level.

The company is estimated to have succeeded in a turnaround despite the sharp decline in special steel shipments, indicating that the rapid deterioration in profitability that began in the second half of 2018 is stabilizing. From the third quarter, nickel prices are showing a strong upward trend, raising expectations for profitability improvement in stainless steel product prices at its subsidiary SeAH Changwon Special Steel.

Researcher Lee said, “Although quarterly operating profit in the second half of the year will be difficult to improve significantly compared to the second quarter, it will definitely improve compared to last year when it was only around the break-even point (BEP),” and explained, “Reflecting the second quarter performance and recent market conditions, we raise the controlling shareholder’s earnings per share (EPS) forecast by 373% and 45%, respectively, compared to the previous forecast.”

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