[Into the Stocks] 'High Dividend Blue Chip' King Ssangyong Cement... Full-Scale Start as a Comprehensive Environmental Company

Securities Firms Raise Target Prices in Relay
Dividend Income Tax Exemption for Next 4 Years
Expecting Benefits from Korean New Deal Policy
At Least 2-3 Years of Cement Shipment Upcycle Expected

Overview of Ssangyong Cement Donghae Plant

[Asia Economy Reporter Park Jihwan] The outlook for Ssangyong Cement's performance this year is becoming brighter. The cement industry itself is mainly seeing positive forecasts due to increased demand and price hikes driven by a favorable construction market. Along with the existing advantage of a generous dividend yield in the 6% range, the ability to earn stable income through quarterly dividends is also attractive to investors. In addition to its core cement business, the company is expanding its business scope by selecting eco-friendly projects, which is also regarded as a long-term strategy for future growth.

Construction Boom Approaching...Cement Shipment Increase and First Price Hike in 7 Years Bring Multiple Benefits

Expectations for the cement sector have been rising since the beginning of the year. Due to a significant improvement in the construction industry, which is a front-line industry, domestic cement shipments are expected to increase. Last year, domestic construction orders set new records with residential construction rising 42% year-on-year to 93 trillion KRW and non-residential construction increasing 11% to 57 trillion KRW. Yoon Seunghyun, a researcher at Hana Financial Investment, stated, "Considering the construction cycle from orders to investment, there will be a nationwide increase in building starts this year. Since cement input occurs from 6 months to 2 years after construction starts, an upcycle benefit in cement shipments is expected for at least the next 2 to 3 years."

There is also potential for earnings upgrades following the price increase negotiations being pursued by the seven major cement companies. The cement industry is currently negotiating a price increase for the first time in 7 years since 2014, and the negotiations between ready-mixed concrete companies and construction firms are expected to conclude within the first half of the year. If the industry succeeds in raising the official cement price by 5,000 KRW per ton, the average selling price (ASP) is estimated to increase by 7-8%.

This year, the government’s allocation of a 26 trillion KRW social overhead capital (SOC) budget?the largest in 10 years?is another factor boosting performance expectations. With the full-scale implementation of the Korean New Deal, cement demand is expected to increase by more than 50 million tons, further supporting improvements in cement companies’ earnings. According to financial information provider FnGuide, Ssangyong Cement’s sales this year are estimated at 1.5542 trillion KRW, and operating profit at 272.1 billion KRW, representing increases of 5.67% and 8.76% respectively compared to the previous year.

Mid-6% After-Tax Dividend Yield...Quarterly Dividends Also Attractive

Ssangyong Cement has traditionally been recognized among stock investors as a strong dividend stock. It currently boasts a dividend yield in the 6% range. Since being acquired by the private equity firm Hahn & Company in 2016, the company has pursued a high-dividend policy in earnest. Annual dividends of 28 billion KRW in 2016 surged to 105.6 billion KRW in 2017 and 187 billion KRW in 2018. Since 2019, the company has maintained a policy of paying dividends exceeding 50 billion KRW each quarter.

Another strength is the ability to earn stable income through quarterly dividends, allowing investors to receive dividends four times a year. From an investor’s perspective, by effectively utilizing quarterly dividends, it is possible to devise an investment strategy that receives dividends monthly, similar to a salary. By investing in stocks like Samsung Electronics and POSCO, which pay quarterly dividends, or by leveraging markets such as the U.S. where quarterly dividends are common, investors can receive dividend income on a monthly basis by combining stocks with different dividend cycles.

In particular, Ssangyong Cement’s capital reduction dividends are not subject to dividend income tax, which effectively increases the real dividend yield. According to current Commercial Act and Income Tax Act provisions, dividends paid using capital reserves until depletion are not subject to dividend income tax. Jang Moonjun, a researcher at KB Securities, explained, "Since no tax was imposed on the 110 KRW dividend in the fourth quarter of last year, investors effectively receive a dividend of 130 KRW per share (considering 14% dividend income tax and 1.4% resident tax).” He also noted that this tax-exempt dividend structure is expected to continue for more than four years.

Selected Eco-Friendly Business as Future Growth Engine...First Year of Full-Scale Operations

Preparations to secure future growth engines are also progressing steadily. Ssangyong Cement is focusing on expanding its business scope by selecting eco-friendly projects as new growth drivers in addition to its core cement business. The company changed its name, which it had maintained since 1962, to Ssangyong C&E (Cement & Environment) and is accelerating its entry into new environmental businesses.

Particularly, the company is focusing on eco-friendliness in the cement production process by operating circular resource facilities that can replace fuels like bituminous coal. Cement is produced by heating raw materials such as limestone, clay, and iron ore in a kiln using bituminous coal as fuel, but Ssangyong Cement is substituting waste plastics for bituminous coal in this process. To this end, the company has invested more than 100 billion KRW annually over the past five years in building eco-friendly production facilities.

These efforts are bearing fruit. Four circular resource facilities that replace bituminous coal with waste incineration were sequentially completed last year, and cost reduction effects are expected to be fully reflected starting this year. The direct cost savings from reduced bituminous coal use are estimated at 20 to 30 billion KRW annually, and additional revenue from circular resource incineration fees is also anticipated. Furthermore, the company is rapidly advancing business structure transformation through new environment-focused businesses such as landfill and intermediate treatment of waste synthetic resins. Rajin Sung, a researcher at KTB Investment & Securities, forecasted, "By 2025, profits from the environmental sector are expected to surpass those from the cement sector."

As expectations grow that industry recovery and eco-friendly investments will drive corporate earnings improvements, the securities industry’s target prices are also rising. KB Securities recently raised Ssangyong Cement’s target price by 16% from 7,500 KRW to 8,700 KRW. Last month, DB Financial Investment and Yuanta Securities also raised their target prices to 9,000 KRW and 8,400 KRW, respectively, representing increases of 13% and 29%. As of the closing price on the 24th, Ssangyong Cement’s stock price was 6,950 KRW, showing a steady rise with a 4.51% return this month.

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