Rating Reaffirmed on POSCO - Analyst Blog
27 Dicembre 2011 - 12:00PM
Zacks
South Korean steelmaker,
POSCO (PKX) is the world's third largest steel
producer on the basis of output. We prefer to remain on the
sidelines for the company and have reaffirmed a Neutral
recommendation on the stock.
POSCO appears to be very well
placed to benefit from its wide regional diversifications, higher
proportion of value-added products in its product mix and new
facility additions over the longer term. Moreover, the company’s
concerted efforts in expanding in fast growing markets, like
graphene and synthetic natural gas and investments in raw materials
will prove to be an added advantage.
According to the World Steel
Association, the near-term outlook for the steel industry remains
cautiously optimistic. According to the WSA, the world steel demand
will increase by 6.5% in 2011 and roughly by 5.4% in 2012.
On the flip side, financial crisis
in the European region, political unrest in other parts of the
world, the Japan earthquakes and economic uncertainty in China,
seem to restrict demand growth. At the same time, production
remains at high levels, which in turn is affecting steel prices.
Raw material prices are on the decline due to soft steel
demands.
Consequently, the Korean steel
market remains weak due to reduced demand from the automobile,
shipbuilding and home appliance industries. We also expect
fluctuations in demand for steel products to continue in the near
future, which may adversely affect the businesses, yield from
operations or financial condition of the company.
In the recently reported financial
results, POSCO’s net income plummeted 78.5% year over year,
primarily due to KRW 1.08 trillion foreign currency translation
losses while revenue showed a 51.6% increase.
To add to the peril, competition is
increasing manifold for the company, especially from peers like
Arcelor Mittal (MT) and Nippon Steel
Corp. (NISTY.PK).
The current Zacks Consensus
Estimate for the fiscal years 2011 and 2012 are $9.84 and $11.58,
reflecting a year-over-year decline of 19.41% and growth of 17.63%,
respectively.
ARCELOR MITTAL (MT): Free Stock Analysis Report
POSCO-ADR (PKX): Free Stock Analysis Report
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