Improved First-Half Earnings for Posco; Raising FVE to USD 45 per ADR
Posco's first-half net profit of KRW 652 billion, up 21% year over year, is above our expectation. The surge was mainly due to higher operating margins in the steel segment as product prices increased. However, this was mitigated by weakness in nonsteel segments, as Posco E&C and Posco Energy both reported net losses during the period. To reflect the higher steel selling prices, we lift our 2016-17 earnings estimates by 7%-16%. As a result, our fair value estimate increases to USD 45 per ADR...POSCO is engaged in the manufacture and distribution of steel rolled products and plates in the domestic and overseas markets. Co. manufactures and sells a diversified line of steel products, including cold rolled and hot rolled products, stainless steel products, plates, wire rods and silicon steel sheets. Also, Co. is able to meet a broad range of customer needs from manufacturing industries that consume steel, including automotive, shipbuilding, home appliance, engineering and machinery industries. Co. operates two steel plants, Pohang Works and Gwangyang Works in the Republic of Korea.
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