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POSCO: Sales to Recover from 2H20
Source: Business Korea
The author is an analyst of NH Investment & Securities. He can be reached at will.byun@nhqv.com. -- Ed.
POSCO’s 2Q20 OP arrived sluggish, falling short of market expectations. We believe that the bulk of Covid-19 effects concentrated in 2Q20. With activity in downstream industries (eg, auto) now restarting, sales volume and profits are expected to pick up in 3Q20.
Consolidated 2Q20 OP falls 84.3% y-y
On a consolidated basis, POSCO announced provisional 2Q20 sales of W13.72tn (-15.9% y-y, -5.7% q-q), OP of W167.7bn (-84.3% y-y, -76.2% q-q), and NP (excluding minority interests) of W40.3bn (-93.4% y-y, -89.8% q-q), with sales arriving similar to consensus, but OP and NP missing the mark by 24.9% and 56.1%, respectively. Despite a loss at the steel division of W197.1bn, the firm enjoyed an operating surplus driven by profits from the global infrastructure business (trading, E&C, energy, and ICT).
On a non-consolidated basis, POSCO registered sluggish 2Q20 operating income, with an operating loss of W108.5bn (TTL y-y, TTL q-q). Carbon steel ASP fell W49,000 q-q, and product sales dropped 10.0% q-q and 11.3% y-y to 7.76mn tons. Impacts from an increase in iron ore prices remained minimal thanks to the time lag between import and input. Also, given the drop in coal prices, impacts from the cost side were limited overall.
Profits to rise on 3Q20 steel sales recovery
In its earnings call, POSCO announced 2020 steel sales guidance of 33.8mn tons, revising up the figure by 1.4mn q-q. Moving ahead, we expect to see improved demand from downstream industries (eg, auto) in line with an easing in the spread of Covid-19. Of note, the company also said that it plans to actively increase product prices in 3Q20 in response to the recent rise in Chinese steel prices and iron ore prices.
We expect POSCO’s steel product sales volume to recover from 8.55mn in 3Q20 to 8.42mn tons in 4Q20. Based on such forecasts, non-consolidated OP is likely to reach W138.4bn (W333.3bn on a consolidated basis) in 3Q20 and W127.4bn (W330.4bn) in 4Q20. However, weighed upon by high iron ore prices, ASP-input cost spread improvement will likely be limited.