Dongkuk Steel Mill Co., Ltd.'s Q3 operating profit seen at 29.8 billion won; Q4 improvement expected as the won-dollar exchange rate falls — Hana Securities

[Financial News] Dongkuk Steel Mill Co., Ltd. is expected to post higher operating profit year on year in this year's third quarter despite lower sales volumes, as rising product prices widen spreads. The lower won-dollar exchange rate being reflected in costs and the continued trade remedies on Chinese-made H-beams are expected to support profitability in the fourth quarter. Hana Securities maintained its Buy rating and target price of 14,000 won for Dongkuk Steel Mill Co., Ltd.
On the 15th, Hana Securities forecast Dongkuk Steel Mill Co., Ltd.'s revenue at 964.1 billion won and operating profit at 29.8 billion won for this year's third quarter. These would be up 25.3% and 21.5%, respectively, from the same period a year earlier, but down 3.2% and 34.5%, respectively, from the previous quarter. Profitability is expected to decline quarter on quarter due to the fixed-cost burden from lower sales volumes.
By product, long-product sales are estimated at 700,000 tonnes, up 19.9% from a year earlier but down 6.5% from the previous quarter. Heavy-plate sales are forecast at 223,000 tonnes, down 9.2% and 15.7%, respectively. The seasonal off-season, the Chuseok holiday and maintenance work at some plants were cited as factors behind the decline in sales volumes.
Product spreads are expected to improve despite the decline in sales volumes. In the third quarter, the input cost of raw materials for electric arc furnaces is estimated to have risen 3.5% from the previous quarter, while the average selling price (ASP) of long products, including rebar, rose 5%. For heavy plate, too, the spread is estimated to have widened, with ASP rising 6%, outpacing the 5% increase in rolling-material costs.
Sales volumes and spreads are both expected to improve in the fourth quarter. Hana Securities forecast long-product sales of 754,000 tonnes, up 7.8% from the previous quarter, and heavy-plate sales of 240,000 tonnes, up 7.3%. Domestic scrap prices have remained weak since July, while Dongkuk Steel Mill Co., Ltd. is pursuing price increases, particularly for H-beams. The decline in the won-dollar exchange rate in the third quarter is also expected to be reflected in fourth-quarter heavy-plate costs. The fourth-quarter operating profit forecast, which includes about 10 billion won in costs for renovation and repairs at the section mill, is 41.6 billion won, up 39.8% from the previous quarter.
The possibility that trade remedies on Chinese-made H-beams will remain in place was also cited as an investment point. Last September, the Korea Trade Commission at the Ministry of Trade, Industry and Energy made a final determination that dumping and injury to domestic industry could recur if the existing measures on Chinese-made H-beams were to expire. It recommended to the Minister of Economy and Finance that price undertakings for Laiwu Steel and Rizhao Steel, along with anti-dumping duties of 28.23%–32.72% on other suppliers, be maintained for the next five years.
Hana Securities forecast Dongkuk Steel Mill Co., Ltd.'s revenue at 3.8606 trillion won and operating profit at 138.4 billion won for this year, up 20.5% and 133.0%, respectively, from last year. It put this year's estimated earnings per share (EPS) at 1,223 won and the price-to-earnings ratio (PER) at 7.31 times.
Park Seong-bong, a researcher at Hana Securities, said, “The sharp drop in the won-dollar exchange rate is expected to improve profitability in the heavy-plate business,” and also viewed the possibility of extending anti-dumping measures on Chinese-made H-beams favorably.

[email protected] Kim Mi-hee Reporter