Poongsan: Focus on Attractive Valuations and Strong Copper Price Outlook 




The author is an analyst of NH Investment & Securities. He can be reached at will.byun@nhqv.com. — Ed.

 

Poongsan’s consolidated OP for 4Q21 will likely come in slightly shy of consensus. Copper sales volume looks to be recovering and defense sales should prove sound. The copper price should keep strong on China’s stockpiling demand amid low inventory levels. In accordance, Poongsan’s share price is primed to rise.

Earnings to decline y-y in 2022, but favorable copper price bodes well for share price

Although adhering to a Buy rating, we lower our TP on Poongsan (103140.KS) from W50,000 to W45,000. Our new TP corresponds to a 2022F P/E of 10.9x and a P/B of 0.72x (ROE of 6.8%). We downwardly adjust our earnings forecasts for the copper division to reflect a slowing in copper price growth. However, Poongsan’s share price is set to rise on both stabilizing defense sales and a favorable copper price.

We forecast 2022 consolidated OP of W187.5bn (-41.3% y-y). Copper price growth will likely lose some steam (y-y), but its general upward trajectory should continue. There are some concerns in play that demand will be dampened by slowing economic growth, but the copper price should continue to rise on a lack of inventory and languid supply growth.


Copper inventories in Shanghai, China, stood at just 17,000 tons on Jan 11, 2022, a notably low level compared to the 74,000 tons seen at the same time a year ago. And, LME inventories have now slipped 63% from their peak in August last year. As of Jan 12, the LME copper price surpasses US$10,000/ton amid anticipated inventory replenishment demand in China. Confirmation of a copper price uptrend should translate into a climb in Poongsan’s share price.

4Q21 preview: Consolidated OP to slightly miss consensus

Poongsan should post consolidated 4Q21 sales of W969.1bn (+21.3% y-y, +9.5% q-q), OP of W69.7bn (+30.3% y-y, -13.8% q-q), and NP (excluding minority shareholders) of W47.6bn (+41.3% y-y, -22.6% q-q), with the three figures missing the market projections by 3.6%, 5.4%, and 7.0%, respectively.

We see non-consolidated 4Q21 OP of W57.4bn (+63.5% y-y, -12.5% ??q-q). We estimate that the LME copper price rose from US$8,945 at end-September to US$11,300 on Oct 18, resulting in a related metal gains. Sales volume at the copper division likely exceeded 47,000 tons amid continued sound business conditions. We estimate 4Q21 defense division sales of W 290.8bn (+8.0% y-y, +55.2% q-q).

 



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