Copper Segment Remains Strong for Poongsan, but Defense Business Faces Uncertainty... "Sale Still in Question" [Click e-Stock]

Fabricated Copper Products Drive Earnings...

Copper Prices Expected to Remain on an Uptrend

Defense Sector—Accounting for 80% of Operating Profit—Still Underperforms

Poongsan achieved solid results in the second quarter of this year, thanks to robust growth in the copper industry. However, its defense business is still recovering slowly, making a sale uncertain.

On August 5, Korea Investment & Securities lowered Poongsan’s target price by 31.3% to 112,000 won against the backdrop of these challenges. The previous day's closing price was 70,500 won. Although the 'Buy' investment rating was maintained, the uncertainty surrounding the defense sector has yet to be resolved.

In the second quarter of this year, Poongsan recorded consolidated sales of 1.4703 trillion won and operating profit of 125.2 billion won. This represents an increase of 13.6% and 33.8%, respectively, compared to the same period last year. Operating profit notably beat the market consensus of 86 billion won.

The key driver behind the strong performance was the fabricated copper products segment. Rising copper prices and improved processing margins resulting from changes in the product mix contributed to increased profitability. Korea Investment & Securities expects the upward trend in copper prices to continue. As the world demands more electricity—driven by artificial intelligence (AI), data centers, power grids, and independent power generation—the structural demand for copper remains strong. In contrast, supply is constrained due to a shortage of new mines and lengthy approval and environmental impact processes, making it difficult to catch up quickly. As long as demand stays resilient, copper prices are expected to remain on an upward path.

The defense business remains a concern. Performance is still sluggish, with sales dropping to 188.6 billion won—down about 45% from the same period last year. Domestically, shipment inspections were delayed while incidents affected related companies. Exports suffered as shipments were delayed due to the blockade of the Strait of Hormuz.

Given that defense business supply contracts are made on an annual basis, delayed deliveries could cluster in the second half and potentially improve results. Still, sale-related uncertainties remain a key concern for investors. Choi Moonseon, analyst at Korea Investment & Securities, stated, "With the sale of the defense business, which accounts for 80% of operating profit, there is a risk that shareholder value could be undermined during the process." He added, "Unless the company's stance is clarified, it will be difficult to dispel uncertainty. Even if we assign the historical trough price-to-earnings ratio (PER) of 4 for the fabricated copper products segment, the current PER for the defense business is only 6, indicating that the market's valuation is excessively conservative."

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