[Click eStock] POSCO Holdings, Limited Stock Impact from Flood Damage

[Image source=Yonhap News]

[Asia Economy Reporter Junho Hwang] As POSCO Holdings announced that it will normalize the flood damage at the Pohang plant by the end of this year, concerns have been raised that even if production disruptions occur over the remaining four months, it will be difficult for the stock price to fall below the historical lowest level.

Jaeseung Baek, a researcher at Samsung Securities, stated on the 19th, "It is difficult to calculate the exact damage amount for recovery costs, inventory losses, and production and sales disruptions caused by this flood, but based on conservative assumptions, the estimated cost suggests a rock bottom valuation at a PBR of around 0.3."

If the company’s plan to normalize production by the end of the year proceeds, there will be a production disruption of approximately 2.5 million tons over about four months. Additionally, about half of the finished product inventory at the existing Pohang plant will be scrapped, and if the initial recovery cost of 140 billion KRW reported by the media is reflected, POSCO Holdings’ operating profit for this year is expected to decrease by about 15% from previous estimates to around 6.2 trillion KRW. When this is reflected in the estimated return on equity (ROE) over the next 12 months, the ROE is expected to fall from 6.5% to 5.2%.

However, Researcher Baek said, "Although this is a significant decrease, it is still higher than the levels seen in 2015 with an ROE of 1.5% and 2020 with an ROE of 3.7%, which showed the lowest valuations," adding, "The possibility of the stock price falling below 0.3, the historical lowest point recorded in 2015 (0.33 times) and 2020 (0.27 times), is considered very limited."

He further added, "There are factors that offset the profit decline, such as the effect of relocating some slabs from the Pohang plant to Gwangyang for substitute finished product production and the price increase of Gwangyang Steelworks products due to finished product production disruptions."

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