[Click-e Stock] "Poongsan, Excessive Decline... Investment Rating Upgraded from Hold to Buy"

BNK Investment & Securities Lowers Target Price by 16.7%

On August 4, BNK Investment & Securities upgraded its investment rating for Poongsan, a company engaged in the defense industry and copper processing business, from 'Hold' to 'Buy.' Although the target price was lowered by 16.7% from 120,000 won to 100,000 won, the recent share price decline was even steeper, increasing the company's upside potential. Based on the closing price on July 31 (71,200 won), the potential upside is 40.4%.

Rolled products of Poongsan. Poongsan

Hyuntae Kim, a researcher at BNK Investment & Securities, stated, "Second-quarter consolidated operating profit was 125.2 billion won, exceeding the consensus (the brokerage firms' average estimate) of 83.1 billion won by 50.6%." He added, "While both sales and operating profit in the defense segment were weaker than expected, the significant increase in earnings from the copper processing segment offset this."

Sales in the defense segment stood at 188.6 billion won, a 45% decrease compared with the same period last year. Domestic sales fell 60%, and export sales dropped 35%, both missing expectations. Delays in acceptance tests—a type of quality inspection—postponed domestic sales to the following quarter. In exports, despite increased sales of sporting ammunition, shipments of shells bound for the Middle East were delayed, resulting in weak performance.

On the other hand, the copper processing segment recorded sales of 931 billion won, up 40%, beating the company's forecast by 11%. Operating profit was 77 billion won, with an operating margin of 8.3%. The rise in the price of electrolytic copper, the primary raw material, contributed significantly, reflecting a 54 billion won inventory valuation gain (metal gain).

Researcher Kim noted, "Of the 125.3 billion won in copper processing operating profit in the first half, 80% was attributable to the rise in electrolytic copper prices. In the second half, if the upward trend in electrolytic copper prices slows, profits from the copper processing segment are bound to decrease." He projected that the recovery of defense segment sales in the second half would offset much of this. Accordingly, company-wide operating profit is expected to remain similar, from 215.4 billion won in the first half to 202.2 billion won in the second half.

However, achieving the annual sales target for the defense segment is not expected to be easy. The company set its annual defense sales goal (guidance) for this year at 1.37 trillion won, but first-half sales stood at 345.3 billion won, falling 22% short of the target. Sales in the second half are also expected to reach only 796.4 billion won, which is 14% below the target (930 billion won).

Researcher Kim stated, "The momentum is limited," but added, "We are raising our investment rating to 'Buy,' reflecting the excessive decline in the stock price."

This content was produced with the assistance of AI translation services.