[Click eStock] "No Sharp Drop in Zinc Prices... Korea Zinc Has Potential for Stock Price Increase"

[Asia Economy Reporter Ji Yeon-jin] Meritz Securities announced on the 8th that it maintains a buy investment opinion on Korea Zinc, considering its high profitability and remaining stock price growth potential, and raised the target price by 7.2% to 740,000 KRW.

Moon Kyung-won, a researcher at Meritz Securities, explained, "Korea Zinc recorded a return on equity (ROE) of around 11% in 2016-2017 and was valued with a price-to-book ratio (PBR) of over 1.7 times. This year, a higher ROE of 12% is expected, but the current forward PBR is only 1.48 times."

The company’s consolidated operating profit this year is expected to be 300.3 billion KRW, a 4.5% increase compared to the previous quarter, meeting market expectations. While there are no significant changes in sales volume and TC (treatment charges), the increase in zinc selling prices is anticipated to lead to profit growth compared to the previous quarter.

However, the Australian zinc smelter (SMC), which recorded poor performance in the fourth quarter of last year, is estimated to have had weak sales volume in the first quarter as well. Nevertheless, a strong performance of 358 billion KRW, a 9.2% increase from the previous quarter, is expected in the second quarter.

Researcher Moon added, "Since March, zinc prices have exceeded $4,400 per ton, reaching the highest level since the financial crisis," and "Recently, the zinc benchmark treatment charge (TC) was set at around $230 per ton, and TC income is expected to improve from the second quarter."

The recent rise in zinc prices is due to supply disruptions caused by the sharp increase in energy prices. Zinc smelting consumes a high amount of electricity even within the metals market. If the surge in oil and natural gas prices caused by the Russia-Ukraine war is not easily resolved, the possibility of a sharp drop in zinc prices from the current level is low.

On the other hand, as treatment charges continue to rise due to increased mine production, Korea Zinc is expected to record an operating profit of 1.3 trillion KRW this year, a 19% increase from the previous year, and an ROE of 12.0%.

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