[Click e-Stock] "Daehan Steel: Lower Expectations for Treasury Stock Cancellation... Target Price Down"

BNK Securities Lowers Daehan Steel Target Price to 13,000 Won

On August 5, BNK Securities announced that it was lowering its target price for Daehan Steel from 17,000 won to 13,000 won, citing the off-season effect in the second half of the year and decreased expectations for the size of its treasury stock cancellation. However, its investment rating was maintained at 'Buy.'

Daehan Steel's consolidated results for the second quarter reported sales of 387.7 billion won and operating profit of 16.3 billion won, surpassing market expectations. This was attributed to robust exports to the United States, which increased the export share to 18 percent, as well as a much higher-than-expected average selling price (ASP) for domestic rebar.

Hyuntae Kim, a researcher at BNK Securities, commented, "Stronger-than-expected sales led to greater fixed cost reduction effects, and operating profit exceeded our forecast by 31 percent. While Korea's overall rebar exports declined slightly in the second quarter compared to the first, Daehan Steel's export volume increased during the same period, likely due to active export sales activities."

However, these strong results are not expected to continue into the second half. The third quarter is typically an off-season, and the off-season effect is likely to be further amplified this year due to a slump in construction and record-breaking heatwaves.

Steelmakers such as Daehan Steel are planning longer-than-usual halts in production, which is expected to result in a heavier fixed cost burden from declining sales compared to a typical year. BNK Securities forecasts third-quarter sales of 355 billion won and operating profit of 3.8 billion won. For the fourth quarter, which is the peak season and should benefit from increased construction starts, sales and operating profit are projected to rebound to 391.4 billion won and 10.1 billion won, respectively.

As a result, BNK Securities noted that it would focus more on value-enhancing measures such as treasury stock cancellation in the second half, rather than on earnings. Daehan Steel has previously stated in its business report that it plans to cancel one million treasury shares out of 5.54 million held before September next year.

Researcher Kim stated, "While it is disappointing that not all shares will be cancelled, the company's policy of high dividends and the cancellation of one million shares should serve as a price support. We are maintaining our 'Buy' investment rating, but are lowering our target price to reflect moderated expectations for treasury stock cancellation."

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