[Click e-Stock] "Poongsan's Q4 Earnings an Inflection Point... Target Price Lowered"

Target Price Lowered by 12% from Previous Level

On December 10, KB Securities lowered its target price for Poongsan from 170,000 won to 150,000 won, noting that the upcoming fourth-quarter earnings announcement is likely to be an inflection point as market expectations have declined. The investment rating was maintained as 'Buy'.

Choi Yonghyun, an analyst at KB Securities, stated, "Considering the potential for a prolonged end to the war and the resulting slowdown in mid- to long-term demand, we have lowered our valuation from an enterprise value to EBITDA (EV/EBITDA) multiple of 11.6 times to 10.9 times." He added, "Poongsan's operating profit has fallen short of consensus (the average of securities firms' estimates) for two consecutive quarters, leading to lower market expectations. The fourth-quarter results will be a turning point."

Poongsan's fourth-quarter results are expected to fall short of market expectations. Analyst Choi said, "On a consolidated basis, fourth-quarter operating profit is projected to reach 71.1 billion won, below consensus. The consolidated copper and alloy business is estimated to record an operating loss of 5.3 billion won. Meanwhile, subsidiary PMX is expected to achieve break-even operating profit as the metal loss recognized in the third quarter is reversed. The defense business is expected to post 76.4 billion won in operating profit, but since domestic sales account for a large proportion, the operating margin is likely to remain at 15.2%," he explained.

While both expectations and concerns exist for next year, the outlook is more positive. KB Securities cited the expansion of 155mm ammunition production (from 100,000 to 200,000-250,000 rounds per year) and the expansion of Poongsan FNS fuze production (from 90,000 to 600,000 units per year) as key positive factors. Analyst Choi estimated, "If the new plants operate at full capacity, the annual sales increase would be approximately 300 billion won and 70 billion won, respectively. Therefore, depending on the ramp-up speed, it is fully possible for next year's results to exceed market expectations."

Concerns include sluggish sales of small-caliber ammunition and the potential underperformance of U.S. subsidiary PMX. Analyst Choi noted, "As of the cumulative third quarter this year, sales volume of small-caliber ammunition has decreased by about 50% year-on-year, and the likelihood of negative growth next year remains high. In addition, U.S. copper and alloy subsidiary PMX is facing greater difficulty in sourcing raw materials as the U.S. has imposed a 50% tariff on finished copper products." He continued, "However, in the mid- to long-term, if raw material procurement stabilizes, the U.S. copper tariff policy could actually lead to an increase in average selling price (ASP), resulting in improved performance."