[Click eStock] "Dongkuk Steel expects Q3 operating profit to exceed consensus"

[Asia Economy Reporter Oh Ju-yeon] KB Securities on the 24th forecasted that Dongkuk Steel's third-quarter operating profit will exceed consensus, maintaining a 'Hold' investment rating and raising the target price by 20% from 4,500 KRW to 5,400 KRW.

According to KB Securities, Dongkuk Steel's K-IFRS consolidated sales for the third quarter of this year are expected to be 1.2905 trillion KRW, down 9.8% year-on-year, while operating profit is expected to increase by 55.2% to 88 billion KRW. Researcher Hong Seong-woo explained, "We expect it to exceed market consensus by 84%," adding, "This is because the domestic long product spread has remained abnormally high following the second quarter."

The long product spread is expected to gradually decline and stabilize after peaking in the second quarter (due to weak selling prices and strong scrap steel prices). Researcher Hong said, "Domestic major electric arc furnace (EAF) steelmakers lowered their operating rates at the beginning of the year as part of profitability improvement measures, which led to an increase in selling prices and a decrease in raw material scrap prices," and added, "In particular, the construction industry, a major downstream sector for long products, was relatively free from the impact of the pandemic, and sales volume remained solid thanks to the peak season in the second quarter."

He added, "Unlike blast furnaces, electric arc furnaces can be operated flexibly, and the domestic EAF operating rate in the first half fell to the lowest ever in the 70% range, but we believe it will rise again as the economy recovers."

Regarding the target price increase, he cited the rise in estimated return on equity (ROE).

Researcher Hong said, "Due to the earnings surprise in the first half, we reduced the expected loss for 2020 by 66 billion KRW and raised the 36-month forward ROE from 1.9% to 2.4% due to changes in the leading period," adding, "Although the 2021 net income attributable to controlling shareholders was lowered by 13.4%, the absolute scale was small, resulting in a limited impact. The target price shows an upside potential of -9.5% compared to the recent closing price, so we maintain the existing 'Hold' investment rating."

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