Samsung Securities has issued a positive outlook for Modern Steel Corp. and raised its price target. In a report released on the 27th, the securities firm noted that while Q1 results were somewhat underwhelming, it expects a significant improvement starting from Q2. Accordingly, the price target was raised from the previous level of 47,000 won to 51,000 won, and the investment rating was maintained at 'Buy'. This move is interpreted as reflecting the possibility of value recovery following the trend of improved future results.
At the time of the Q1 results announcement, revenue reached 5.7 trillion won, a 4.6% increase year-on-year, but operating profit plummeted by 63.7% to 1.57 billion won. This fell 72% below the market consensus, sparking concerns among investors. Researcher Baek Jae-seung pointed to rising raw material costs due to increases in iron and steel prices and exchange rate fluctuations as the main causes of the poor performance. In particular, analysis suggests that margin pressure intensified because prices for flat-rolled products failed to fully pass through cost increases during the first quarter.
However, the researcher stated that performance improvement is expected starting in Q2 due to robust domestic demand and sustained increases in the distribution price of rebar. Since customs duties were imposed on Chinese rebar imports at the end of September last year, imports decreased by over 90% compared to the previous year, causing the domestic rebar distribution price to rise by 150,000 won per ton over the past three months. It is reported that Modern Steel Corp. already implemented a price increase of 50,000 won per ton in February and is reportedly pursuing an additional increase in April.
Alongside this trend of rising prices, attention is also focused on the possibility that the decline in Chinese steel exports will lead to improved supply and demand. As of March this year, Chinese steel exports decreased by 10% year-on-year, and if this trend continues, global supply and demand are expected to ease as domestic steel production in China declines. The current price-to-book ratio (PBR) is assessed as very low at 0.28 times, representing a sufficient opportunity for trading.