[Click eStock] Pungsan, Copper Price Rise and Defense Export Expectations

[Asia Economy Reporter Lee Myunghwan] Yuanta Securities stated on the 5th that it expects direct and indirect benefits for Poongsan from the rise in copper prices and defense industry exports due to geopolitical risks, maintaining a buy rating and a target price of 45,000 KRW.

Yuanta Securities forecasts Poongsan's consolidated operating profit for the first quarter of this year at 42 billion KRW, a 33% decrease compared to the same period last year and a 35% decrease compared to the previous quarter. The first quarter sales are expected to increase by 20.8% year-on-year to 876 billion KRW.

By segment, it is analyzed that metal gains occurred following the previous quarter due to the rise in copper prices. Metal gain refers to the profit generated when the selling price of products is higher than the raw material cost. From December last year to February this year, the London Metal Exchange (LME) copper price was $9,759 per ton (approximately 11.87 million KRW), a 1% increase from the previous quarter. However, Yuanta Securities analyzed that the scale of metal gains likely slightly decreased compared to the previous quarter due to the slowdown in the price increase. The sales volume of copper products is expected to be around 49,000 tons, a 2% increase from the previous quarter.

Yuanta Securities pointed out that prices of copper and other major non-ferrous metals showed strength in the first quarter of this year despite the rise in the dollar index. This is because concerns about supply and demand have had a greater impact. At the beginning of this year, the spread of the Omicron variant caused concerns about delays in mine production normalization. In February, Russia's invasion of Ukraine heightened worries about raw material supply disruptions. Researcher Lee Hyunsoo of Yuanta Securities said, "Overall, amid persistent concerns about raw material supply, copper prices are expected to remain at high levels, but the rate of increase will be relatively lower compared to 2020-21."

Sales in the defense sector are estimated to have increased by 101% year-on-year. While domestic sales are expected to show a significant increase due to the base effect, export sales are judged to have the potential to increase by 70% due to strong sales in the U.S. and Middle East regions.

However, it was analyzed that there would be no direct benefits from the Ukraine war. Poongsan's defense exports are centered on the U.S. and the Middle East, including some Southeast Asian regions. Since exports to countries adjacent to the Russia-Ukraine region are almost nonexistent, a direct increase in exports is difficult to expect, but if the situation prolongs, there is a possibility of direct and indirect impacts.

The researcher predicted, "While operating profit in the copper products segment is expected to decrease compared to the previous year, the defense sector may partially offset this."

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