The author is an analyst of NH Investment & Securities. He can be reached at will.byun@nhqv.com. — Ed.
Profit growth stemming from anticipated 2021 copper price increase is forecast to help push up Poongsan’s share price moving ahead. We expect the LME copper price to reach US$8,000/ton. In the long term, we expect Poongsan’s EV to rise on re-evaluation of its land holdings arising in the process of relocating its Busan factory.
Consolidated 2021F OP to rise 15% y-y
Adhering to a Buy rating, we raise our TP on Poongsan (103140.KS) to W36,000. Our TP equates to a 2021F P/B of 0.7x (average level over past five years) and P/E of 13x. Expected to benefit from ongoing copper price strength, Poongsan is forecast to enjoy profit improvement at both the domestic copper products business and US subsidiary PMX. In the long term, the firm’s asset value should be highlighted by the relocation of its Busan plant operations. Poongsan is projected to log 2021 sales of W2.9tn (+12.3% y-y), OP of W137.6bn (+15.0% y-y), and NP (excluding minority interests) of W78bn (+17.5 y-y). In 2021, copper product sales recovery is to be the key to OP expansion, with anticipated copper price growth leading to overall profit improvement. However, annual sales at the defense business are likely to decline 3.2% y-y, as 1Q21 marks the last quarter of its supply contract (W95.7bn) to the Middle East.
Copper price growth to drive profit improvement; Busan plant value to rise
On Nov 16, the price of copper touched US$7,093/ton, topping US$7,000/ton for the first time since Jun 17, 2018. On Dec 3, it rose to US$7,669/ton, the highest level in seven years and eight months. Although the winter phase of Covid-19 is now underway, we expect copper price strength to sustain going forward thanks to economic recovery-driven demand. We set US$8,000/ton as the upper end of our 12-month copper price forecast.
Meanwhile, we note that 72% of Poongsan’s Busan plant operations are to be relocated, as they are currently located within the Centum 2 District Urban High-tech Industrial Complex (promoted by Busan City). Compared with the book value of W181.1bn, the market is valuing the Busan plant land at W700bn. While social consensus is likely to be called for regarding profits from the sale, ultimately, Poongsan’s EV should enjoy a healthy boost on the back of asset reevaluation.