[Click eStock] Pungsan, Strong Copper Prices Raise Expectations for Q3 Good Performance

Yuanta Securities Report
Q3 Consolidated Operating Profit of 46.7 Billion KRW

[Asia Economy Reporter Minji Lee] Yuanta Securities maintained a buy rating and a target price of 32,000 KRW for Poongsan on the 24th, based on the analysis that strong copper prices are expected to drive solid performance in the third quarter as well.

Poongsan's standalone operating profit for the third quarter is forecasted at 36.8 billion KRW, and consolidated operating profit at 46.7 billion KRW, representing increases of 490% and 23,235% respectively compared to the same period last year.

On a standalone basis, refined copper sales volume is estimated to decline by 3% year-on-year to 42,000 tons, but due to the easing impact of COVID-19, sales volume per unit is expected to increase by 2% compared to the previous quarter. The average LME copper price from June to August was $6,209 per ton, up 20% from March to May, which likely had a positive effect on the selling price of refined copper products.

Researcher Hyunsoo Lee of Yuanta Securities explained, "Changes in gross profit due to fluctuations in copper prices are largely divided into sales and inventory components. Since inventory asset valuation gains affecting inventory were largely reflected in the second quarter, the impact in the third quarter is expected to be limited."

The defense sector typically shows lower performance in the third quarter compared to the second quarter based on experience, but this year, strong export performance is expected to increase total sales by 4% from the previous quarter to 188 billion KRW.

On a consolidated basis, the strong copper prices are also expected to improve the performance of overseas subsidiaries. Poongsan America, which recorded a net profit of 3.5 billion KRW in the second quarter due to strong ammunition exports to the U.S., is expected to maintain solid profits in the third quarter as well.

Despite a sharp drop in copper prices in the first quarter due to COVID-19, copper prices as of the 22nd rose 11% compared to the beginning of the year. Following the decline in the dollar index and increased demand from China since the second quarter, the year-to-date returns show that copper among major non-ferrous metals (copper, zinc, lead, nickel, aluminum) has recorded the highest level.

Researcher Lee said, "With the dollar index rebounding since September, the overall upward momentum in non-ferrous metal prices is expected to slow down. However, China's demand remains solid, with copper imports reaching 4.27 million tons from January to August." He added that the weakening of China's copper concentrate TC (treatment charge) also supports copper prices. The TC fell from $72.5 per ton in March to $51.5 per ton as of the 22nd, indicating a relative shortage of concentrate supply compared to demand, which is expected to support copper prices.

Researcher Lee analyzed, "The defense sector will continue to see strong ammunition exports mainly to the U.S., which will help offset profit declines in the refined copper segment caused by the slowdown in copper price increases."

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