posco - credit suisse
TRANSCRIPT
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION®
Client-Driven Solutions, Insights, and Access
13 July 2016
Asia Pacific/South Korea
Equity Research
Steel
POSCO
(005490.KS / 005490 KS) COMPANY UPDATE
Supply reform in China real this time
■ Supply reform in China a key driver for mid-term margin outlook. We
believe there is a real restructuring in China steel industry this time led by
banks’ credit tightening. Credit Suisse China materials team expects steel
capacity shutdown of 150 mn t over 2016-18, equivalent to 14% of China’s
current total capacity and slightly more aggressive than the government’s
capacity cut target of 100-150 mn t over the next three-to-four years. It
appears that Chinese government’s will for supply reform has never been as
strong as it is currently.
■ Consolidated subsidiaries passing through the earnings bottom. We
believe that many of POSCO’s major consolidated subsidiaries are currently
passing through their cyclical/earnings bottoms in 2015-2016, even though a
drastic turnaround is less likely in the near term. We anticipate the supply
reform in China to help out not only POSCO, the parent, but also most of its
overseas subsidiaries, which are primarily into the steel business. On the
other hand, a meaningful turnaround of its major subsidiaries in Korea,
which are mostly non-steel companies, is likely to take more time.
■ A notable decrease in non-OP expense 2H16 onwards. POSCO’s assets
and balance sheet appear to be fairly clean as of end-2Q16. We believe
POSCO’s sizable net non-operating losses in recent years had already
peaked in 2014-15 and expect a notable decrease in its net non-OP expense
from W1.8 tn/W2.2 tn in 2014/15 to W1.0 tn/W0.6 tn in 2016/17E, respectively.
■ Offering an appealing risk-averse return. Reiterate OUTPERFORM with a
TP of W280,000 (0.55x 2016E P/B). The stock’s appealing dividend yield
and cheap valuation could limit its downside risk, even if our positive view on
steel margin outlook does not work.
Share price performance
40
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120
100000
200000
300000
400000
Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16
Price (LHS) Rebased Rel (RHS)
The price relative chart measures performance against the
KOREA SE KOSPI IDX which closed at 1970.35 on 30/06/16
On 30/06/16 the spot exchange rate was W1152.36/US$1
Performance over 1M 3M 12M Absolute (%) 7.6 -8.3 4.4 — Relative (%) 6.2 -7.8 7.0 —
Financial and valuation metrics
Year 12/15A 12/16E 12/17E 12/18E Revenue (W bn) 58,192.3 54,126.2 56,680.1 57,572.9 EBITDA (W bn) 5,628.3 6,034.4 6,406.6 6,738.5 EBIT (W bn) 2,410.0 2,708.3 3,076.0 3,415.8 Net profit (W bn) 180.6 1,284.7 1,793.2 2,053.2 EPS (CS adj.) (W) 2,258 16,060 22,416 25,666 Change from previous EPS (%) n.a. 0 0 0 Consensus EPS (W) n.a. 16,341 20,074 21,704 EPS growth (%) -71.1 611.2 39.6 14.5 P/E (x) 100.5 14.1 10.1 8.8 Dividend yield (%) 3.5 2.6 2.6 2.6 EV/EBITDA (x) 7.1 6.3 5.8 5.4 P/B (x) 0.44 0.43 0.42 0.40 ROE (%) 0.4 3.1 4.2 4.6 Net debt/equity (%) 45.2 39.8 37.4 33.5
Source: Company data, Credit Suisse estimates
Rating OUTPERFORM* Price (13 Jul 16, W) 227,000 Target price (W) 280,000¹ Upside/downside (%) 23.3 Mkt cap (W bn) 19,791.4 (US$17.3 bn) Enterprise value (W bn) 38,032 Number of shares (mn) 87.19 Free float (%) 83.9 52-week price range 249,000.0 - 156,000.0 ADTO - 6M (US$ mn) 70.6
*Stock ratings are relative to the coverage universe in each
analyst's or each team's respective sector.
¹Target price is for 12 months.
Research Analysts
Minseok Sinn
82 2 3707 8898
Hoonsik Min
82 2 3707 3761
13 July 2016
POSCO
(005490.KS / 005490 KS) 2
Focus charts and tables Figure 1: HRC price (China spot) and POSCO share price Figure 2: China—steel spread and crude steel production
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HRC price (China spot) POSCO share price (W, RHS)(U$/t) (KRW)
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Crude steel production (annualized, RHS)
HRC-to-Raw material Spread
Average spread
(mn tonnes)(U$/t)
Source: Bloomberg, Credit Suisse Source: CEIC, Credit Suisse estimates
Figure 3: China—steel supply-demand outlook
(mn t) 2011 2012 2013 2014 2015 2016E 2017E 2018E
App consumption 669 716 767 744 704 685 704 703
YoY 9% 7% 7% -3% -5% -3% 3% 0%
Production 702 758 815 823 804 785 784 763
YoY 10% 8% 8% 1% -2% -2% 0% -3%
Capacity 863 959 1,106 1,092 1,063 1,008 948 918
Net additions 63 96 22 -14 -29 -55 -60 -30
Utilization 81% 79% 74% 75% 76% 78% 83% 83%
Net export 33 42 48 79 100 100 80 60
Source: CEIC, Mysteel, Credit Suisse estimates
Figure 4: POSCO—operating profit by business (consolidated)
(W bn) 2012 2013 2014 2015 2016E 2017E 2018E
Operating Profit
Steel 3,070 2,363 2,268 1,876 2,419 2,594 2,842
Trading 139 82 285 192 175 211 242
E&C 10 179 446 266 64 182 185
Energy & others 434 372 215 76 50 89 148
Total 3,653 2,996 3,214 2,410 2,708 3,076 3,416
OP (parent) 2,789 2,215 2,350 2,238 2,532 2,799 3,066
Consol – Parent (OP gap) 864 781 864 172 176 277 350
Source: Company data, Credit Suisse estimates
Figure 5: POSCO—breakdown of net non- operating expense (consolidated)
(W bn) 2012 2013 2014 2015 2016E 2017E 2018E
Net interest expense 593 397 567 579 494 458 426
Dividend (income) -124 -59 -48 -184 -90 -90 -90
Equity method loss (gain) 23 180 300 506 103 -18 -18
FX loss (gain) -823 -101 41 276 30 0 0
Asset impairment loss (gain) 519 426 545 586 300 150 150
Asset disposal loss (gain) -277 -78 -237 -167 -80 -80 -80
Provisioning 44 177 223 166 100 80 80
Donation 74 61 70 63 65 65 65
A tax charge1 272
A lawsuit settlement cost1 299
Others 257 47 103 106 50 50 50
Total (net) 285 1,050 1,835 2,229 973 614 583
1: One-off items. Source: Company data, Credit Suisse estimates
13 July 2016
POSCO
(005490.KS / 005490 KS) 3
Supply reform in China real this time A further drastic expansion of steel spread less likely
in the near term We expect steel spread in Asia to stay at around the current level for a while. Steel mills’ weak profitability, a lower inventory level, and a better-than-expected demand support the spread/margin outlook. On the other hand, the sharp rebound in steel production in China since March is likely to hinder any expansion of the steel spread in the near term, while over-capacity issue still remains a key overhang on the industry.
Supply reform in China a key driver of mid-to long-
term margin outlook We anticipate Chinese government’s supply reform plan to deliver a meaningful outcome
over the next few years, and it could work as a key driver for POSCO eventually by
helping steel price/spread in Asia. We believe that there is a real restructuring in China
steel industry this time led by banks’ credit tightening (i.e., Credit Suisse China materials
team expects steel capacity shutdown of 150 mn t over 2016-18, equivalent to 14% of
China’s current total capacity), while Chinese government’s will for the supply reform
appears to have been never as strong as it is currently.
Consolidated subsidiaries passing through earnings
bottom We believe that many of POSCO’s major consolidated subsidiaries are currently passing
through their cyclical/earnings bottoms in 2015-2016, even though a drastic turnaround is
less likely in the near term. We anticipate the supply reform in China to help not only the
parent POSCO but also most of its overseas subsidiaries, which are primarily into the steel
business. On the other hand, a meaningful turnaround of its major subsidiaries in Korea,
which are mostly non-steel companies, is likely to take more time.
A notable decrease in non-OP expense from 2H16
onwards POSCO’s assets and balance sheet appear to be fairly clean as of end-2Q16. We believe
that POSCO’s sizable net non-operating losses in recent years had already peaked in
2014-15 and expect a notable decrease in its net non-OP expense from W1.8 tn/W2.2 tn
in 2014/15 to W1.0 tn/ W0.6 tn in 2016/17E, respectively.
Offering an appealing risk-averse return We reiterate our OUTPERFORM rating and TP of W280,000. While we continue to believe
that steel spread in Asia has already seen its bottom in late 2015, earnings improvement
of major consolidated subsidiaries in overseas and a notable decrease in net non-
operating expense from 2H16 onwards are additional positives. The stock’s appealing
dividend yield (c.2.7% currently) and cheap valuation (2016E P/B of only 0.4x currently)
could minimise the downside risk, even if our positive view on steel margin outlook does
not work.
Risks Credit Suisse’s Economics team has lately revised down its forecast of Korea’s 2016-17E
GDP growth from 2.6%/2.9% to 2.4%/2.7%, respectively, indicating continuing weak
demand growth outlook in the domestic market. Meanwhile, a strengthening USD (if it
happens) may put pressure on steel price outlook given the historically close inverse
correlation between USD and steel price.
Probability of limited
movement of POSCO’s
share price in the near term,
given the higher correlation
between steel price and the
stock historically
Chinese government’s will/
executions for the supply
reform appear never been
as strong as it is in the past
Supply reform in China to
not only help POSCO but
also most of its overseas
subsidiaries
POSCO’s assets and
balance sheet appear to be
fairly clean as of end-2Q16
Appealing dividend yield and
cheap valuation could
minimise the downside risk
Demand outlook in the
domestic market remains
weak
13 July 2016
POSCO
(005490.KS / 005490 KS) 4
POSCO 005490.KS / 005490 KS Price (13 Jul 16): W227,000, Rating: OUTPERFORM, Target Price: W280,000, Analyst: Minseok Sinn
Target price scenario
Scenario TP %Up/Dwn Assumptions Upside 330,000.00 45.37 TP based on 0.65x 2016E P/B Central Case 280,000.00 23.35 TP based on 0.55x 2016E P/B Downside 230,000.00 1.32 TP based on 0.45x 2016E P/B
Key earnings drivers 12/15A 12/16E 12/17E 12/18E
ASP - Finished steel products (U/tonne)
615.4 582.0 584.6 582.8 Sales volume ('000 MT) 35.3 35.5 35.9 36.3 Hard coking coal price (U/MT)
102.1 87.6 94.0 97.5 Iron-ore fines price (U/MT) 51.2 49.6 44.6 40.0 — — — —
Income statement (W bn) 12/15A 12/16E 12/17E 12/18E
Sales revenue 58,192 54,126 56,680 57,573 Cost of goods sold 51,658 47,576 49,679 50,201 SG&A 4,124 3,842 3,925 3,956 Other operating exp./(inc.) (3,218) (3,326) (3,331) (3,323) EBITDA 5,628 6,034 6,407 6,739 Depreciation & amortisation 3,218 3,326 3,331 3,323 EBIT 2,410 2,708 3,076 3,416 Net interest expense/(inc.) 578.6 494.5 457.6 425.7 Non-operating inc./(exp.) (1,145) (375) (175) (175) Associates/JV (506.1) (103.2) 18.3 18.0 Recurring PBT 181 1,735 2,462 2,833 Exceptionals/extraordinaries — — — — Taxes 276.9 520.6 738.5 849.9 Profit after tax (96) 1,215 1,723 1,983 Other after tax income — — — — Minority interests (276.8) (70.0) (70.0) (70.0) Preferred dividends — — — — Reported net profit 181 1,285 1,793 2,053 Analyst adjustments — — — — Net profit (Credit Suisse) 181 1,285 1,793 2,053
Cash flow (W bn) 12/15A 12/16E 12/17E 12/18E
EBIT 2,410 2,708 3,076 3,416 Net interest — — — — Tax paid — — — — Working capital 2,754 1,270 (693) (255) Other cash & non-cash items 2,438 1,902 2,048 1,960 Operating cash flow 7,602 5,881 4,431 5,121 Capex (2,560) (2,860) (2,860) (2,860) Free cash flow to the firm 5,042 3,021 1,571 2,260 Disposals of fixed assets — — — — Acquisitions (13,579) — — — Divestments 11,894 — — — Associate investments — — — — Other investment/(outflows) (289.1) (381.6) (381.6) (381.6) Investing cash flow (4,535) (3,242) (3,242) (3,242) Equity raised 1,260 180 — — Dividends paid (822.6) (640.0) (480.0) (480.0) Net borrowings (2,577) (1,319) (500) (500) Other financing cash flow (78.5) — — — Financing cash flow (2,218) (1,778) (980) (980) Total cash flow 849.0 861.1 209.2 898.8 Adjustments — — — — Net change in cash 849.0 861.1 209.2 898.8
Balance sheet (W bn) 12/15A 12/16E 12/17E 12/18E
Cash & cash equivalents 4,870 5,661 5,800 6,629 Current receivables 10,849 9,773 10,234 10,395 Inventories 8,225 7,757 8,123 8,251 Other current assets 5,236 5,236 5,236 5,236 Current assets 29,181 28,427 29,393 30,511 Property, plant & equip. 34,523 34,439 34,350 34,269 Investments 8,332 8,332 8,332 8,332 Intangibles 6,406 6,406 6,406 6,406 Other non-current assets 1,967 1,967 1,967 1,967 Total assets 80,409 79,570 80,448 81,485 Accounts payable 3,125 2,857 2,991 3,025 Short-term debt 12,371 10,983 10,810 10,249 Current provisions 512.8 506.3 506.3 506.3 Other current liabilities 4,122 4,122 4,122 4,122 Current liabilities 20,131 18,468 18,430 17,903 Long-term debt 12,849 12,918 12,591 12,652 Non-current provisions 1,677 1,677 1,677 1,677 Other non-current liab. 681.8 681.8 681.8 681.8 Total liabilities 35,339 33,745 33,380 32,913 Shareholders' equity 41,235 42,060 43,374 44,947 Minority interests 3,835 3,765 3,695 3,625 Total liabilities & equity 80,409 79,570 80,448 81,485
Per share data 12/15A 12/16E 12/17E 12/18E
Shares (wtd avg.) (mn) 80.0 80.0 80.0 80.0 EPS (Credit Suisse) (W) 2,258 16,060 22,416 25,666 DPS (W) 8,000 6,000 6,000 6,000 BVPS (W) 515,469 525,778 542,194 561,860 Operating CFPS (W) 95,028 73,520 55,390 64,011
Key ratios and valuation 12/15A 12/16E 12/17E 12/18E
Growth(%) Sales revenue (10.6) (7.0) 4.7 1.6 EBIT (25.0) 12.4 13.6 11.0 Net profit (71) 611 40 14 EPS (71) 611 40 14 Margins (%) EBITDA 9.7 11.1 11.3 11.7 EBIT 4.14 5.00 5.43 5.93 Pre-tax profit 0.31 3.21 4.34 4.92 Net profit 0.31 2.37 3.16 3.57 Valuation metrics (x) P/E 101 14 10 9 P/B 0.44 0.43 0.42 0.40 Dividend yield (%) 3.52 2.64 2.64 2.64 P/CF 2.39 3.09 4.10 3.55 EV/sales 0.69 0.70 0.66 0.63 EV/EBITDA 7.13 6.30 5.84 5.35 EV/EBIT 16.7 14.0 12.2 10.6 ROE analysis (%) ROE 0.44 3.08 4.20 4.65 ROIC (1.91) 2.93 3.35 3.69 Asset turnover (x) 0.72 0.68 0.70 0.71 Interest burden (x) 0.08 0.64 0.80 0.83 Tax burden (x) (0.53) 0.70 0.70 0.70 Financial leverage (x) 1.78 1.74 1.71 1.68 Credit ratios Net debt/equity (%) 45.2 39.8 37.4 33.5 Net debt/EBITDA (x) 3.62 3.02 2.75 2.41 Interest cover (x) 4.17 5.48 6.72 8.02
Source: Company data, our estimates
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Source: IBES
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13 July 2016
POSCO
(005490.KS / 005490 KS) 5
A further drastic expansion of steel spread less likely in the near term Steel spread in China appears slightly below its five-year average currently after a drastic
expansion during December 2015 and April 2016 and a considerable contraction
afterwards during May.
We expect the steel price/spread in Asia to stay at around the current level for a while.
Steel mills’ weak profitability, a lower inventory level, and a better-than-expected demand
in China support the spread/margin outlook. On the other hand, a sharp rebound in steel
production in China since March is likely to hinder further expansion of the steel spread in
the near term, while over-capacity issue still remains a key overhang in the industry.
Figure 6: China—HRC price and steel spread (spot)
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HRC-to-Raw material spread Average (spread)
HRC price Average (HRC)
(U$/t)
Source: Bloomberg, Credit Suisse estimates
Figure 7: HRC price (China spot) and POSCO share price
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HRC price (China spot) POSCO share price (W, RHS)(U$/t) (KRW)
Source: Bloomberg, Credit Suisse
Mills’ weak profitability, a lower inventory level, and a better-than-expected demand the major positives
On the positive side, we anticipate steel mills’ weak profitability (the improvement in the
spread since December 2015 has helped profitability though) and their relatively lower
inventory level of late in China to support the spread/margin outlook in the near term.
A mixture of major positive
and negative catalysts
exists in the Asia steel
market currently
Lots of Chinese mills still not
profitable enough
13 July 2016
POSCO
(005490.KS / 005490 KS) 6
HRC price of <$300/t in China spot market during 2H15 had implied a negative cash
margin for many steel mills in China, while we estimate a cash cost of >U$300/t for HRC
production for most steel mills in Asia at the current level of iron ore/coking coal prices.
During the poor steel price situation in 2H15, more shipments had meant bigger cash
burns for many Chinese mills and particularly for the smaller ones which do not have the
scale and have a relatively lower-end product mix. Indeed, the cash burning situation
during 2H15 had led a considerable decrease in production volume in China, which
appeared the direct driver for the drastic rebound in steel price/spread during December
2015 and April 2016.
Although the notable recovery in the steel price/spread since December 2015 has helped
the profitability of steel mills considerably, lots of Chinese mills (in particular, the small
ones) still do not appear profitable enough.
Figure 8: China—HRC price and portion of profitable mills out of total mills (medium-to-
largely mills only)
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HRC price
Average price
# of profitable mills-to-Total steel mills in China (YTD, RHS)
(U$/t) (%)
Source: CEIC, Mysteel, Credit Suisse estimates
Secondly, the relatively lower inventory level currently, compared to the past, is also likely
to work as a key supporting factor for steel price/ spread outlooks in the near term.
Figure 9: China—steel product inventory and inventory turnover
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At warehouse At mills Inventory turnover (RHS)
(mn tonnes) (days)
Source: CEIC, Mysteel, Credit Suisse estimates
Lastly, near-term demand outlook also appears not too bad compared to what was a
concern previously. Credit Suisse China materials team had already revised up its forecast
for China’s steel demand in 2016/17 from 663 mn t and 655 mn t (-5.8% and -1.2% YoY)
to 685 mn t and 704 mn t (-2.7% and +2.8% YoY), respectively, thanks to the central
government’s demand stimulus on infrastructure/ property and better-than-expected
activities in the property market.
Most mills in China were
under cash-burning
situations in 2H15
Inventory remains lower
than the past average level
Demand also not too bad
compared to what was a
concern previously
13 July 2016
POSCO
(005490.KS / 005490 KS) 7
Figure 10: China—revision in steel demand forecast
2011 2012 2013 2014 2015 2016E 2017E 2018E
Original 669 717 768 744 708 663 655 652
Revised 704 685 704 703
Change (%) -0.6% 3.3% 7.5% 7.8%
Source: CEIC, Mysteel, Credit Suisse estimates
On the other hand sharp rebound of steel production since March hinders further improvement
On the flip side, we expect that the sharp rebound in steel production in China since March,
which is already close to the record high level, to limit any room for further improvement in
steel price/spread, while over-capacity issue remains a key overhang on the steel industry.
We estimate that the production increase since March is the direct reason for the
weakness in steel price since late April, whereas the considerable cut in production
volume in China under a cash burning situation in 2H15 appeared the biggest driver for
the drastic rebound in steel price/spread during December 2015 and April 2016.
Figure 11: China—HRC price and crude steel production
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Crude steel production (annualized, RHS) HRC price Average price(mn tonnes)(U$/t)
Source: CEIC, Bloomberg, Credit Suisse
Figure 12: China—HRC-to-raw material spread and crude steel production
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Crude steel production (annualized, RHS)
HRC-to-Raw material Spread
Average spread
(mn tonnes)(U$/t)
Source: CEIC, Credit Suisse estimates
Steel production in China
has rebounded close to the
record high level since
March 2016
13 July 2016
POSCO
(005490.KS / 005490 KS) 8
Supply reform in China a key driver of mid-to long-term margin outlook We anticipate Chinese government’s supply reform plan to deliver a meaningful outcome
over the next few years and it could work as a key driver for POSCO eventually by helping
in steel price/spread in Asia.
Credit Suisse China materials team expects steel production capacity shutdown of 145 mn
t in China over 2016-18E led by banks’ credit tightening, equivalent to 14% of the current
capacity in China, while many Chinese mills will fail to generate enough cash to meet cash
costs and service debt. Credit Suisse China Economics team also believes that China
must go through structural reforms (including SOE reforms, fiscal reforms, and unwinding
of leverage) in order to return to self-sustainable growth.
Figure 13: China—steel supply-demand outlook
(mn t) 2011 2012 2013 2014 2015 2016E 2017E 2018E
App consumption 669 716 767 744 704 685 704 703
YoY 9% 7% 7% -3% -5% -3% 3% 0%
Production 702 758 815 823 804 785 784 763
YoY 10% 8% 8% 1% -2% -2% 0% -3%
Capacity 863 959 1,106 1,092 1,063 1,008 948 918
Additions 94 107 25 11 5 5 0 0
Closures -31 -11 -3 -25 -34 -60 -60 -30
Net additions 63 96 22 -14 -29 -55 -60 -30
Utilization 81% 79% 74% 75% 76% 78% 83% 83%
Net export 33 42 48 79 100 100 80 60
Source: CEIC, Mysteel, Credit Suisse estimates
Figure 14: China—steel consumption, capacity, production, and net export CAGR
(%, YoY) 2010-12A 2013-15E 2016-18E
App consumption 8% -1% -0%
Capacity 12% 3% -5%
Production 10% 2% -2%
Net export 82% 34% -16%
Utilization (average) 84% 75% 81%
Source: Credit Suisse estimates
Figure 15: China—portion of loss-making mills out of total mills (mid-to-large mills only)
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Jan-
16
No. of Loss Making Enterprise in China (Large & Medium Enterprise, YTD)
% of Loss Making Enterprise (YTD, RHS)
(No of companies)
Source: CEIC, Credit Suisse
Credit Suisse China
materials team expects 14%
of China's current total steel
production capacity to be
shut down by end-2018
13 July 2016
POSCO
(005490.KS / 005490 KS) 9
In detail, we expect a surge in crude steel production capacity shutdown in China from 21
mn t over 2013-15E (net) to 145 mn t over 2016-18E, which is slightly more aggressive
than the government’s capacity cut target of 100-150 mn t over the next three to four years.
The team also projects the capacity/production cut to result in a sharp decrease in China’s
net export of steel products from 100 mn t in 2016 to 60 mn t in 2018.
We anticipate the export cut from China to directly help steel price/spread in Asia,
including in Korea, considering that the surge in net export from China from 48 mn t in
2013 to 100 mn t in 2015 had been one of the key reasons for the weakness/squeeze of
price/spread in Asia steel market during the past couple of years.
Figure 16: Crude steel production share by country
(2015A)
Figure 17: China—crude steel production and net export
of steel products
China, 50
Japan, 7
India, 6
US, 5
Russia, 4
Korea, 4
Europe, 13
Rest of the world, 11
(%)
-
20
40
60
80
100
120
140
500
550
600
650
700
750
800
850
900
Jan-
11
Jul-1
1
Jan-
12
Jul-1
2
Jan-
13
Jul-1
3
Jan-
14
Jul-1
4
Jan-
15
Jul-1
5
Jan-
16
Jul-1
6
Crude steel production (annualized)
Steel product net exports (annualized, RHS)
(mn tonnes)(mn tonnes)
Note: Out of the world's total crude steel production of 1,599 mn t in
2015. Source: World Steel Association, Credit Suisse
Source: CEIC, Credit Suisse
Figure 18: Korea—steel consumption, production export, and import
('000 t) Production Export Import Apparent consumption
Crude steel YoY Downstream YoY Total YoY Total YoY Korea YoY
2008 53,625 4.1% 62,770 0.3% 20,787 8.6% 22,802 13.1% 64,784 1.9%
2009 48,572 -9.4% 57,643 -8.2% 20,541 -1.2% 15,166 -33.5% 52,268 -19.3%
2010 58,914 21.3% 67,026 16.3% 24,881 21.1% 18,907 24.7% 61,052 16.8%
2011 68,519 16.3% 73,917 10.3% 29,091 16.9% 18,932 0.1% 63,758 4.4%
2012 69,073 0.8% 73,826 -0.1% 30,485 4.8% 17,946 -5.2% 61,287 -3.9%
2013 66,061 -4.4% 71,841 -2.7% 29,191 -4.2% 17,010 -5.2% 59,660 -2.7%
2014 71,543 8.3% 72,092 0.3% 32,257 10.5% 19,665 15.6% 59,500 -0.3%
2015 69,670 -2.6% 71,628 -0.6% 31,551 -2.2% 19,120 -2.8% 59,197 -0.5%
Source: Korea Steel Association, Credit Suisse
Credit tightening the direct trigger for the supply reform
The key difference in the supply reform plan in China this time, compared to the past,
when it had been poor in terms of the executions, is that it is more detailed, and the same
target has been repeatedly confirmed by multiple related authorities, representing the
government’s strong will for industry restructuring.
Establishment of a special fund of Rmb100 bn, to subsidise the restructuring cost of the
steel/coal industries, is symbolic and shows how serious the central government is about
the restructuring of industries burdened with over-capacity (such as steel), considering the
impact on employment. The Chinese government estimates about 1.8 mn layoffs from
steel/coal industry in aggregate out of the current total of 10 mn employees in the two
industries (coal: 6 mn, steel: 4 mn) as a result of the ongoing/upcoming supply reform in
the two industries.
Capacity/production cut in
China to result in a sharp
decrease in its net export of
steel products from 100 mn
in 2016 to 60 mn t in 2018
Supply reform plan in China
much more detailed this
time than in the past
Establishment of a special
subsidy fund is symbolic
and shows how serious the
Chinese government is this
time around
13 July 2016
POSCO
(005490.KS / 005490 KS) 10
Figure 19: China—major restructuring plan for steel industry (revealed since early 2015)
Date Contents Announced by Time frame
Mar 2015 Capacity cut target of 80 mn t Ministry of Industry and IT By end-2017
Sep 2015 Privatization of SOE companies Communist Party's Central Committee n.a
Jan 2016 Capacity cut target of 100-150 mn t The State Council (Premier Li Keqiang) Over 3-4 years
Feb 2016 Establishment of a special subsidy fund (RMB100 bn) to
subsidize c.1.8 mn job cuts (E) from steel/coal industry
Ministry of Finance, Ministry of Human resources and
Social security
n.a
Mar 2016 Capacity cut target of 150 mn t National People’s Congress Over 3-4 years
Apr 2016 Maanshan Steel's capacity cut plan of 4.2 mn t Maanshan Steel By end-2018
Jun 2016 Capacity cut target of 45 mn t National Dev. and Reform Commission By end-2016
Jun 2016 Merger of Bao and Wuhan Steel Baosteel and Wuhan Steel n.a
Jun 2016 Mandatory 10% cut of SOEs’ current steel capacity (cut
by c. 40 mn t in aggregate)
State-owned Assets Supervision and Administration
Commission of the State Council
By mid-2018
Jul 2016 Production halt on steel mills in Tangshan, Hebei (China’s
largest steel production region) until end-July
Tangshan City Government 2nd
half of July
2016
Jul 2016 Production halt on 255 petrochemical, steel and cement
companies in Shanghai ahead of G20 summit in
Hangzhou, Zhejiang, on 4-5 Sep
Shanghai City Government 24 Aug 2016 –
6 Sep 2016
Jul 2016 Baosteel pledged to cut 9.2 mn t of its crude steel
capacity , equivalent to about a quarter of its production of
36.1 mn t in 2015
Baosteel By end-2018
Source: Company data, Thomson Reuters, Bloomberg, Credit Suisse
In terms of a direct trigger, we believe that the weakening legacy support from banks
would be a key change versus the past that will lead to a higher probability of supply exit,
while the poor profitability of Chinese mills is also due to their higher debt level. In addition,
many of them fail to generate enough cash to meet cash costs and service debt.
According to CEIC, the total liability of China's steel industry (medium-to-large size mills
only) has already decreased by 3% as of April 2016 compared to the peak in September
2015, indicating credit tightening has already begun.
Figure 20: China—Steel mills’ net profit (YTD, aggregated, medium-to-largely mills only)
-80
-60
-40
-20
0
20
40
60
80
100
Jan-
11
Jul-1
1
Jan-
12
Jul-1
2
Jan-
13
Jul-1
3
Jan-
14
Jul-1
4
Jan-
15
Jul-1
5
Jan-
16
(RMB bn)
Source: CEIC, Credit Suisse
Figure 21: China—Total liability of steel industry (medium-to-large size mills only)
1
2
3
4
Jan-
09
Jul-
09
Jan-
10
Jul-
10
Jan-
11
Jul-
11
Jan-
12
Jul-
12
Jan-
13
Jul-
13
Jan-
14
Jul-
14
Jan-
15
Jul-
15
Jan-
16
(RMB tn)
Source: CEIC, Credit Suisse
Total liability of China's steel
industry has already
decreased by 3% as of April
2016 compared to the peak
in September 2015,
indicating credit tightening
has already begun
13 July 2016
POSCO
(005490.KS / 005490 KS) 11
Consolidated subsidiaries passing through earnings bottom We believe that many of POSCO’s major consolidated subsidiaries are passing through
their cyclical/earnings bottoms in 2015-2016, even though a drastic turnaround is less
likely in the near term.
We expect a gradual improvement in the subsidiaries’ operations/earnings from 2H16
onwards, whereas poor operational/earnings performances of the subsidiaries have been
an additional depressing factor in recent years besides the squeeze of steel spread.
Figure 22: POSCO—sales and operating profit by business (consolidated)
(W bn) 2012 2013 2014 2015 2016E 2017E 2018E
Sales
Steel 35,259 31,795 31,842 28,293 26,306 26,685 26,872
Trading 18,946 18,308 21,166 18,315 17,400 18,999 19,603
E&C 4,676 6,897 8,119 8,516 7,659 8,041 8,143
Energy & others 4,723 4,865 3,971 3,068 2,761 2,955 2,955
Total 63,604 61,865 65,098 58,192 54,126 56,680 57,573
Operating Profit
Steel 3,070 2,363 2,268 1,876 2,419 2,594 2,842
Trading 139 82 285 192 175 211 242
E&C 10 179 446 266 64 182 185
Energy & others 434 372 215 76 50 89 148
Total 3,653 2,996 3,214 2,410 2,708 3,076 3,416
OP margin
Steel 8.7% 7.4% 7.1% 6.6% 9.2% 9.7% 10.6%
Trading 0.7% 0.4% 1.3% 1.0% 1.0% 1.1% 1.2%
E&C 0.2% 2.6% 5.5% 3.1% 0.8% 2.3% 2.3%
Energy & others 9.2% 7.6% 5.4% 2.5% 1.8% 3.0% 5.0%
Total 5.7% 4.8% 4.9% 4.1% 5.0% 5.4% 5.9%
OP (parent) 2,789 2,215 2,350 2,238 2,532 2,799 3,066
Consol – Parent (OP gap) 864 781 864 172 176 277 350
Source: Company data, Credit Suisse estimates
Figure 23: POSCO—major subsidiaries and affiliates (as of December 2015)
POSCO’s
Stake (%)
BV (W bn,
Dec 2015)
Consolidated? Listed? MV
(W bn)
Rationales
Consolidated subsidiaries
POSCO-Daewoo 60.3 3,371 Y Y 1,590 Market value
POSCO E&C 52.8 1,014 Y N n.a n.a
POSCO Energy 89.0 658 Y N n.a n.a
POSCO P&S 96.0 625 Y N n.a n.a
PT Krakatau POSCO 70.0 813 Y N n.a n.a
POSCO Maharashtra Steel 100.0 537 Y N n.a n.a
Zhangjiagang Pohang SS 82.5 284 Y N n.a n.a
Non-consolidated affiliates
POSCO Plantec1
60.8 171 N N n.a n.a
Roy Hill Holdings 12.5 1,153 N N n.a n.a
POSCO-NPS Niobium 50.0 381 N N n.a n.a
CSP 20.0 81 N N n.a n.a
1Used to be included in POSCO’s consolidated accounting during Dec 2014 and Sep 2015. Delisted in April
2016. Source: Company data, Credit Suisse
Many of POSCO’s major
consolidated subsidiaries
are currently passing
through their cyclical/
earnings bottoms in 2015-
2016, in our view
13 July 2016
POSCO
(005490.KS / 005490 KS) 12
Figure 24: POSCO—business nature of major subsidiaries and affiliates
Business description
Consolidated subsidiaries
POSCO-Daewoo One of Korea's leading trading companies, specialized in steel, petrochemical and energy products. Also owns
51% stakes in three offshore natural gas fields in Myanmar, which began gas production in July 2013.
POSCO E&C One of Korea's leading E&C companies, specialized in construction of industrial/power plants.
POSCO Energy One of Korea's largest independent power plants (IPP), which has a power generation capacity of 3,600 MW from
three LNG power plants in Korea.
POSCO P&S Operates downstream steel processing centres, mainly for POSCO's customers. Also produces steel-based
construction materials.
PT Krakatau POSCO A JV BOF mill in Indonesia with crude steel production capacity of 3 mn t/y, which began crude steel production in
Dec 2013. Also has downstream capacity (slab: 1.5 mn t, plate: 1.5 mn t). POSCO and Krakatau Steel (an
Indonesian state-owned steel company) own 70% and 30% stakes, respectively.
POSCO Maharashtra Steel A CRC rerolling mill in India with production capacity of 1.8 mn t/y. Began operation in June 2014.
Zhangjiagang Pohang
Speciality Steel
A specialty steel mill in China with production capacity of 1.0 mn t/y.
Non-consolidated affiliates
POSCO Plantec1 One of Korea's major EPC/shipbuilding equipment suppliers. Also provides maintenance/upgrade service for
POSCO’s steel production facilities.
Roy Hill Holdings One of the world's biggest iron ore mines, which has iron ore reserve of 2.3 bn t and mining capacity of 55 mn t/y,
in West Australia. Began the first iron ore shipment in Dec 2015.
CSP A JV BOF mill in Brazil with crude steel production capacity of 3 mn t/y, which is began crude steel production in
2Q16. Vale, Dongkuk Steel and POSCO own 50%, 30% and 20% stakes, respectively. 1Used to be included in POSCO’s consolidated accounting during Dec 2014 and Sep 2015. Source: Company data, Credit Suisse
Figure 25: POSCO—sales mix by business (consolidated) Figure 26: POSCO—OP mix by business (consolidated)
0%
20%
40%
60%
80%
100%
2012 2013 2014 2015 2016E 2017E 2018E
Steel Trading E&C Energy & others
0%
20%
40%
60%
80%
100%
2012 2013 2014 2015 2016E 2017E 2018E
Steel Trading E&C Energy & others
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 27: POSCO—asset by business (consolidated)
Dec 11 Dec 12 Dec 13 Dec 14 Dec 15
Asset (W bn)
Steel 51,844 53,139 56,332 53,632 52,238
Trading 13,270 11,179 11,738 12,795 10,236
E&C 7,618 8,564 9,138 9,771 9,014
Energy & others 5,676 6,383 7,248 9,055 8,921
Total 78,409 79,266 84,455 85,252 80,409
Mix (%)
Steel 66% 67% 67% 63% 65%
Trading 17% 14% 14% 15% 13%
E&C 10% 11% 11% 11% 11%
Energy & others 7% 8% 9% 11% 11%
Source: Company data, Credit Suisse
13 July 2016
POSCO
(005490.KS / 005490 KS) 13
A meaningful turnaround of major subsidiaries in Korea likely to take some time
The continuing weakness of LNG price implies the continuing tough environment for
POSCO-Daewoo’s operational outlook. On top of the weak LNG price, Korea’s current
high power reserve ratio that is likely to continue at least until 2017 indicates that a
meaningful turnaround in POSCO Energy’s earnings is likely to take at least a couple of
years.
POSCO E&C also appears to have seen a sizable completion loss from POSCO’s JV blast
mill project in Brazil in 2Q16 (CSP, which began production of crude steel in 2Q16), even
though there would be no more loss from the project that was completed in 2Q16.
Figure 28: POSCO—summary financials of major consolidated subsidiaries in Korea
POSCO-Daewoo POSCO E&C POSCO Energy POSCO P&S
(W bn) 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015
Sales 17,109 20,408 17,527 10,155 9,581 8,965 2,901 2,599 1,955 2,746 3,163 3,144
Operating Profit 159 376 369 448 323 248 227 119 139 29 34 33
Pre-tax Profit 178 287 134 242 53 67 151 8 44 43 -9 1
Net Profit 133 176 109 147 79 26 126 21 49 36 -14 1
OP margin 0.9% 1.8% 2.1% 4.4% 3.4% 2.8% 7.8% 4.6% 7.1% 1.1% 1.1% 1.0%
Assets 8,269 9,341 8,043 8,642 8,366 8,339 4,184 4,991 5,086 1,062 1,297 1,195
Liabilities 6,038 6,966 5,622 5,695 5,380 4,907 2,619 3,425 3,507 368 426 323
Equities 2,230 2,375 2,421 2,946 2,986 3,433 1,564 1,566 1,579 694 871 872
Net debt (cash) 3,777 4,765 3,814 275 1,940 543 2,061 2,793 2,928 138 202 158
Gross gearing 271% 293% 232% 193% 180% 143% 167% 219% 222% 53% 49% 37%
Net gearing 169% 201% 158% 9% 65% 16% 132% 178% 185% 20% 23% 18%
CFO -320 -438 1,268 383 -81 645 239 352 58 0 -12 58
CFI -308 -427 -208 -150 -528 6 -987 -1,073 -177 -14 -42 -1
CFF 513 953 -1,096 -164 -28 392 748 749 56 61 44 -57
Source: Company data, Credit Suisse
Improvement in steel spread benefits most overseas subsidiaries, which primarily do steel business
Most of POSCO’s overseas subsidiaries’ earnings highly correlate with steel price/spread,
as most of them primarily do steel business.
While we anticipate Chinese government’s aggressive supply reform plan to help steel
price/spread in Asia over the next few years, we expect the improvement to benefit most
of POSCO’s overseas subsidiaries. Indeed, most of POSCO’s overseas subsidiaries'
earnings appeared to have notably improved in 1H16.
Weak LNG price, Korea’s
current high power reserve
ratio, and a sizable
completion loss have
depressed earnings of
POSCO-Daewoo, POSCO
Energy, and POSCO E&C
Most of POSCO’s major
overseas subsidiaries'
earnings appear to have
notably improved in 1H16
13 July 2016
POSCO
(005490.KS / 005490 KS) 14
Figure 29: POSCO—summary financials of major consolidated subsidiaries in overseas
PT Krakatau POSCO
(Indonesia)
POSCO Maharashtra Steel
(India)
Zhangjiagang Pohang SS
(China)
POSCO-Vietnam
(Vietnam)
(W bn) 2013 2014 2015 2013 2014 2015 2013 2014 2015 2013 2014 2015
Sales 0 1,130 1,227 224 376 687 2,936 3,023 2,482 715 645 527
Operating Profit -27 -133 -275 -30 -24 -8 23 24 -80 8 2 -8
Pre-tax Profit n.a n.a n.a n.a n.a n.a n.a n.a n.a n.a n.a n.a
Net Profit -42 -251 -423 -112 -27 -81 21 7 -116 -1 -6 -16
OP margin n.a -11.7% -22.4% -13.1% -6.4% -1.1% 0.8% 0.8% -3.2% 1.1% 0.2% -1.6%
Assets 3,411 3,955 4,259 943 1,408 1,283 1,306 1,354 1,077 541 559 469
Liabilities 2,438 3,131 3,818 832 1,211 1,081 806 837 674 509 532 458
Equities 973 824 441 111 198 201 500 516 404 32 27 11
Net debt (cash) n.a n.a n.a n.a n.a n.a n.a n.a n.a n.a n.a n.a
Gross gearing 251% 380% 866% 753% 613% 537% 161% 162% 167% 1,589% 1,987% 3,993%
Source: Company data, Credit Suisse
13 July 2016
POSCO
(005490.KS / 005490 KS) 15
A notable decrease in non-OP expense from 2H16 onwards We estimate a sizable equity method loss of W109 bn from POSCO’s 61% stake in
POSCO Plantec (100% of the remaining BV for the entire 61% stake at March 2016) and
an impairment loss of W180 bn from its 2.5% stake in NSSMC in 2Q16 due to the delisting
of POSCO Plantec in April 2016 and share price weakness of NSSMC, respectively.
On the other hand, we estimate that POSCO’s assets and balance sheet have been fairly
clean as of end-2Q16 after the sizable equity method/asset impairment loss losses in
2Q16E.
We believe that POSCO’s sizable net non-operating losses in recent years had already
peaked in 2014-15 and expect a notable decrease in net non-operating expense from
W1.8 tn/ W2.2 tn in 2014/15 to W1.0 tn/ W0.6 tn in 2016/17E, respectively.
Figure 30: POSCO—breakdown of net non- operating expense (consolidated)
(W bn) 2012 2013 2014 2015 2016E 2017E 2018E
Operating Profit 3,653 2,996 3,214 2,410 2,708 3,076 3,416
Net non-OP Expense 285 1,050 1,835 2,229 973 614 583
Net interest expense 593 397 567 579 494 458 426
Dividend (income) -124 -59 -48 -184 -90 -90 -90
Equity method loss (gain) 23 180 300 506 103 -18 -18
FX loss (gain) -823 -101 41 276 30 0 0
Asset impairment loss (gain) 519 426 545 586 300 150 150
Asset disposal loss (gain) -277 -78 -237 -167 -80 -80 -80
Provisioning 44 177 223 166 100 80 80
Donation 74 61 70 63 65 65 65
A tax charge1 272
A lawsuit settlement cost1 299
Others 257 47 103 106 50 50 50
Pre-tax Profit 3,368 1,946 1,378 181 1,735 2,462 2,833
Income Tax 983 591 821 277 521 739 850
Net Profit 2,386 1,355 557 -96 1,215 1,723 1,983
Owners of parent equity 2,462 1,376 626 181 1,285 1,793 2,053
Minorities -76 -21 -69 -277 -70 -70 -70
1One-off items. Source: Company data, Credit Suisse estimates
Sharp decrease in equity method loss from 2016
In particular, we see room for material improvement from equity method gain/loss and
asset impairment loss in the upcoming years.
The zero book value for its 61% stakes in POSCO Plantec as at June 2016E indicates no
further equity loss from POSCO Plantec to POSCO from 3Q16 onwards regardless of the
earnings outlook of the troubled affiliate, which was delisted in April 2016 and is currently
under a workout programme led by its creditor banks, while POSCO Plantec has
constituted one of the bigger parts of POSCO's sizable equity method losses during 2014-
15.
There is also unlikely to be any additional sizable equity method loss from CSP (Brazil)
and Roy Hill Holdings (Australia) from 2H16 onwards, considering that: (1) the sizable
equity method losses from the two overseas affiliates in 2015 were effectively amortisation
of its stakes in the affiliates by depreciation of the local currencies prior to beginning of
their operations and (2) the two affiliates began operation in June 2016 and December
2015 respectively.
POSCO’s assets and
balance sheet have been
fairly clean as of end-2Q16,
in our view
We expect POSCO’s net
non-operating expense to
decrease from W1.8 tn/
W2.2 tn in 2014/15 to W1.0
tn/ W0.6 tn in 2016/17E
The zero book value of its
61% stake in POSCO
Plantec as at June 2016E,
which has constituted one of
the bigger parts of POSCO's
sizable equity method
losses during 2014-15,
indicates no further equity
loss from POSCO Plantec
from 3Q16 onwards
13 July 2016
POSCO
(005490.KS / 005490 KS) 16
Figure 31: POSCO—breakdown of equity method gain (consolidated)
(W bn) Stake (%) BV (W bn)1 2012 2013 2014 2015 2016E 2017E 2018E
POSCO Plantec2 60.8 171 -17 -49 -211 -46 -171
2 0 0
Other affiliates in Korea n.a 920 12 -23 -11 -27 -34 -34 -34
Roy Hill Holdings3 12.5 1,153 -17 -38 -15 -62 50 50 50
POSCO-NPS Niobium 50.0 381 19 16 16 13 12 12 12
CSP4 20.0 81 -3 -34 -57 -145 50 0 0
Eureka Moly5 20.0 88 0 0 0 -147 0 0 0
Other overseas affiliates n.a 1,150 -18 -51 -23 -92 -10 -10 -10
Total 4,111 -23 -180 -300 -506 -103 18 18
1As at Dec 2015.
2Used to be included in POSCO’s consolidated accounting during Dec 2014 and Sep 2015. Appeared to be fully written off in
1H16. 3Began its first iron ore shipment in Dec 2015.
4Began crude steel production in June 2016.
5A molybdenum mine. Equity method loss of
W147 bn in 2015 was basically an one-off impairment loss to reflect weakness of molybdenum price. Source: Company data, Credit Suisse
estimates
Asset impairment losses also set to fall drastically
We also anticipate a substantial decrease in POSCO’s asset impairment loss from
average W519 bn p.a. over 2012-2015 to average W200 bn p.a. in 2016-18E.
While the sizable loss of W2.1 tn over 2012-15 (aggregated) mostly came from its stakes
in listed non-affiliates and investments in overseas mines due to weaknesses in the share
prices and commodity prices, the current BVs for the assets eventually reflect much of the
weaknesses under stabilising commodity prices.
Additionally, a non-OP tax charge of W272 bn in 2014 and a non-OP lawsuit settlement
cost of W299 bn in 2015 were basically non-repeatable one-off items.
Figure 32: POSCO—major disposable assets
Company Stake
(%)
Shares
(mn)
Book value
(W bn, Dec 15)
Market value
(W bn)
Remarks
In-house business/ affiliates
Gwangyang LNG terminal n.a n.a n.a n.a POSCO plans spin off the business and dispose 49%
stakes (expected sale value: W400-500 bn)
POSCO Energy (unlisted) 89.0 40.2 658 n.a POSCO plans to list the subsidiary and sell part of its
current stake during/after the IPO
POSCO-Daewoo (listed) 60.3 68.7 3,371 1,590 No immediate disposal plan. But POSCO considers
sale part of the (or entire) stake eventually.
Non-affiliates
SeAH Changwon Specialty Steel 19.9 7.2 160 167 The 20% stake to be sold W167 bn in 3Q16
KB Financial Holdings 3.0 11.6 384 373 Can be sold anytime upon management's decision
Shinhan Financial Holdings 0.9 4.4 173 165 Can be sold anytime upon management's decision
Hana Financial Holdings 0.8 2.4 57 55 Can be sold anytime upon management's decision
Hyundai Heavy Ind 1.9 1.5 130 149 No disposal plan due to the strategic partnership
NSSMC1 2.5 238.4 560 532 No disposal plan due to the strategic partnership
1We estimate impairment loss of W180 bn in 2Q16E from the stake. Source: Company data, Credit Suisse
POSCO’s sizable asset
impairment loss of W2.1 tn
over 2012-15 mostly came
from its stakes in listed non-
affiliates and investments in
overseas mines due to
weaknesses in share price
and commodity prices
13 July 2016
POSCO
(005490.KS / 005490 KS) 17
Offering an appealing risk-averse return We reiterate our OUTPERFORM rating and target price of W280,000 (0.55x 2016E P/B)
on POSCO. We believe POSCO currently offers an appealing risk-averse return.
While we continue to believe that steel spread in Asia has already seen its bottom in late
2015, we anticipate ongoing restructuring efforts for steel industry in China to deliver a
meaningful outcome that could help steel price/spread in Asia and increase POSCO’s
share over the next three to four years.
Earnings improvement of major consolidated subsidiaries in overseas and notable
decrease in net non-operating expense from 2H16 onwards are another key reason why
we are positive on POSCO currently, whereas the subsidiaries’ poor operations and
sizable non-operating expenses have been additional major overhangs for the company in
recent years.
Lastly, POSCO’s appealing dividend yield (c.2.7% for FY16, assuming decrease of DPS
from W8,000 for FY15 to W6,000 for FY16E) is also a reason to own the name.
Even if our positive view on the steel margin outlook does not work, we anticipate the
stock’s appealing dividend yield and cheap valuation (i.e., 2016E P/B of only 0.4x
currently) to minimise the downside risk.
Figure 33: POSCO—P/B (12-months-forward)
0.3
0.5
0.7
0.9
1.1
Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16
Fwd PB Average(x)
Source: Company data, Credit Suisse estimates
Figure 34:P/B-to-ROE (2016E)
AMNSSMC
POSCO
JFE
Bao
SAIL
Angang
Hyundai
TataChina
0.0
0.2
0.4
0.6
0.8
1.0
1.2
-6 -4 -2 0 2 4 6 8
P/B (2016E, X)
ROE (2016E, %)
Source: Company data, Credit Suisse estimates
Our TP of W280,000 is based
on 0.55x 2016E P/B
The stock’s appealing
dividend yield (c.2.7%
currently) and cheap
valuation (2016E P/B of only
0.4x currently) could minimize
the downside risk, even if our
positive view on steel margin
outlook does not work
13 July 2016
POSCO
(005490.KS / 005490 KS) 18
Figure 35: POSCO—EV/EBITDA (12-months forward)
5
6
7
8
9
10
Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16
Fwd EV/EBITDA Average(x)
Source: Company data, Credit Suisse estimates
Figure 36: : EV/t-to-EBITDA/t (2016E)
AM
POSCONippon
Baoshan
JFE
Angang
SAIL
US Steel
Hyundai
Maanshan
0
500
1,000
1,500
-50 0 50 100 150 200 250
EBITDA per tonne (2016E, US$)
EV per tonne (2016E, US$)
Source: Company data, Credit Suisse estimates
Figure 37: Valuation comparison
July 12, 2016 Price Target
price
Up
side
Rat-
ing
M cap
(U$
P/E (x) EV/EBITDA (x) EPS growth (%) P/B (x) ROE (%) Div. Yield (%) Net gearing (%)
(LCY) (LCY) (%) mn) 15A 16E 17E 15A 16E 17E 15A 16E 17E 15A 16E 17E 15A 16E 17E 15A 16E 17E 15A 16E 17E
005490.KS POSCO 212,500 280,000 31.8 O 16,219 94.1 13.2 9.5 6.9 6.4 6.1 -71.1 611.2 39.6 0.4 0.4 0.4 0.4 3.1 4.2 3.8 2.8 2.8 45.2 39.8 37.4
004020.KS Hyundai Steel 46,100 72,000 56.2 O 5,386 8.2 7.9 5.9 6.7 6.4 5.8 -14.7 4.2 32.8 0.4 0.4 0.4 5.1 4.9 6.2 1.6 1.6 1.6 78.1 69.5 59.1
5401 NSSM 2,066 2,450 18.6 N 17,422 12.8 10.0 n.a 7.7 7.0 n.a -28.8 27.9 n.a 0.7 0.6 n.a 5.1 6.5 n.a 2.2 2.4 n.a 63.5 63.8 n.a
5411 JFE Holdings 1,384 1,900 37.3 O 7,624 23.7 8.8 n.a 7.9 6.4 n.a -75.9 170.4 n.a 0.4 0.4 n.a 1.8 4.9 n.a 2.2 2.9 n.a 70.8 67.3 n.a
5406 Kobe Steel 91 110 20.9 N 3,160 n.a 11.4 n.a 5.7 5.3 n.a n.a n.a n.a 0.5 0.4 n.a -2.9 4.0 n.a 2.2 2.2 n.a 80.9 84.1 n.a
0323.HK Maanshan 1.9 2.0 7.5 O 2,736 n.a n.a 6.2 n.a 6.2 5.3 n.a n.a 52.9 0.7 0.6 0.5 -23.0 6.4 8.7 0.0 0.0 0.0 83.7 80.3 67.7
600019.SS Baosteel 4.9 8.6 75.5 O 12,068 79.7 10.0 9.1 8.0 4.7 4.3 -82.5 695.7 10.1 0.7 0.7 0.6 0.9 6.9 7.3 1.2 5.0 5.5 30.6 21.8 18.9
0347.HK Angang Steel 3.9 5.2 32.0 O 4,442 n.a 14.4 7.4 47.1 7.8 6.0 n.a n.a 94.1 0.6 0.5 0.5 -10.1 3.9 7.1 0.0 0.0 0.0 57.8 47.3 26.5
JSTL.BO JSW Steel 1,541 1,600 3.8 O 5,567 n.a 15.6 n.a 13.0 6.9 n.a n.a n.a n.a 1.7 1.6 n.a -3.2 10.6 n.a 0.0 1.1 n.a 169.5 147.1 n.a
TISC.BO Tata Steel 342 440 28.5 O 4,967 n.a 26.6 n.a 16.6 9.6 n.a -15.8 n.a n.a 1.2 1.2 n.a 3.1 5.4 n.a 0.0 2.3 n.a 292.5 283.9 n.a
SAIL.BO SAIL 49 35 -29.3 U 3,054 n.a n.a n.a n.a 20.1 n.a n.a -52.6 n.a 0.5 0.5 n.a -9.6 -4.9 n.a 0.0 0.0 n.a 96.0 115.8 n.a
2002.TW China Steel 21.0 23.4 11.7 N 10,289 44.2 25.6 21.9 13.9 11.7 11.5 -65.6 72.9 16.9 1.1 1.1 1.1 2.5 4.4 5.0 4.8 1.6 2.7 86.2 73.1 83.8
NLMKq.L Novolipetsk Steel 13.7 17.2 25.5 O 8,211 8.5 6.4 6.0 4.8 4.7 4.5 2.0 33.3 5.4 1.6 1.4 1.3 16.9 23.1 21.6 6.0 11.1 10.7 21.2 15.4 10.9
CHMFq.L Severstal 10.9 12.8 17.4 O 8,836 14.6 5.6 6.9 4.6 5.0 4.8 n.a 162.8 n.a 3.9 2.9 2.5 23.8 59.6 39.0 8.1 10.6 9.6 35.5 15.7 7.7
MAGNq.L Magnitogorsk Steel 5.3 8.3 57.8 O 4,517 10.8 4.6 n.a 3.4 3.3 n.a n.a 134.1 n.a 1.4 1.0 n.a 11.6 25.2 n.a 3.3 6.8 n.a 33.7 -1.1 n.a
MT.N ArcelorMittal 5.6 7.5 33.5 O 17,229 n.a n.a 13.1 6.8 6.7 5.3 630.4 -96.2 n.a 0.4 0.6 0.6 -23.6 -1.9 4.4 0.0 0.0 0.0 56.9 35.9 25.2
Source: Company data, Credit Suisse estimates
13 July 2016
POSCO
(005490.KS / 005490 KS) 19
Risks Slow macro growth indicates a weak demand growth
outlook in the domestic market
Credit Suisse Economics team lately revised down its forecast for Korea’s GDP growth for
2016-17E from 2.6%/2.9% to 2.4%/2.7% as sluggish Chinese growth and a sharp
deceleration in private fixed asset investments are likely to exert more pressure over
Korea’s investment and its processing-trade exports. Given major steel customers in
Korea are mostly exporters, this indicates a weak demand growth outlook in the domestic
market. Of note, exports constitute about half of Korea's total GDP, while China solely
accounts about a quarter of Korea's total exports.
Figure 38: Korea—steel demand by industry Figure 39: Korea—steel supply-demand outlook
Auto
E&C
Shipbuilding
Machinery
Electronics
(mn t) 2012 2013 2014 2015 2016E
App. consumption 54.1 51.8 55.5 55.5 55.9
YoY -4% -4% 7% 0% 1%
Production 72.1 69.1 74.1 73.8 75.7
YoY 0% -4% 7% 0% 3%
Net export 18.0 17.4 18.6 18.3 19.8
YoY 13% -3% 7% -1% 8%
Export 30.5 29.2 32.3 31.6 32.5
YoY 5% -4% 11% -2% 3%
Import 12.5 11.8 13.7 13.2 12.7
YoY -5% -6% 16% -3% -4%
Source: Korea Steel Association, Credit Suisse Source: POSRI, Credit Suisse
A strengthening USD may put pressure on steel price
outlook
Credit Suisse’s global economics team expects Brexit to lead weakness of GBP/Euro and
strength of USD. Given steel price in Asia has had a close inverse correlation with USD, a
strengthening USD (if it happens) may put pressure on near-term steel price outlook. This
indicates an increased pressure on the near-term outlook on POSCO’s share potentially
considering it is more closely correlated with steel price than its own earnings momentum,
when the two key variables do not match up. Of note, we estimate no material direct
impact on POSCO's profitability in terms of the direction of currency. We estimate that its
steel product exports (c.50% of its total shipments currently) and raw material imports are
mostly naturally hedged each other.
Figure 40: HRC price (China spot) and dollar index
90
95
100
105
110
115
120
125
130200
300
400
500
600
700
800
Jan-
11
Jul-1
1
Jan-
12
Jul-1
2
Jan-
13
Jul-1
3
Jan-
14
Jul-1
4
Jan-
15
Jul-1
5
Jan-
16
HRC price DXY (reversed, RHS)(U$/t) (Indicies)
Source: Bloomberg, Credit Suisse
Major steel customers in
Korea are mostly exporters,
while we are concerned
about more pressure over
Korea’s investment and its
processing-trade exports
Steel price in Asia has had a
close inverse correlation
with USD historically
13 July 2016
POSCO
(005490.KS / 005490 KS) 20
Financial statements and analysis Figure 41: POSCO—Income statement
(W bn) 2013A 2014A 2015A 2016E 2017E 2018E
Sales 61,865 65,098 58,192 54,126 56,680 57,573
Parent 30,544 29,219 25,607 23,809 24,152 24,321
Others 31,321 35,880 32,585 30,317 32,528 33,252
Cost of goods sold 55,005 57,815 51,658 47,576 49,679 50,201
Gross profit 6,860 7,283 6,534 6,550 7,001 7,372
Parent 4,049 4,263 4,134 4,378 4,664 4,949
Others 2,811 3,020 2,400 2,172 2,337 2,422
SG&A expense 3,864 4,070 4,124 3,842 3,925 3,956
Operating profit 2,996 3,214 2,410 2,708 3,076 3,416
Parent 2,215 2,350 2,238 2,532 2,799 3,066
Others 781 864 172 176 277 350
Non-operating income 2,430 2,366 2,600 498 659 676
Interest income 260 228 210 242 252 269
Equity method gain -180 -300 -506 -103 18 18
Forex gain 1,951 1,877 2,013 -30 0 0
Others 398 561 883 389 389 389
Non-OP expense 3,480 4,202 4,829 1,471 1,274 1,259
Interest cost 658 796 789 737 710 695
Equity method loss 0 0 0 0 0 0
Forex loss 1,850 1,917 2,289 0 0 0
Others 972 1,489 1,751 734 564 564
Pre-tax profit 1,946 1,378 181 1,735 2,462 2,833
Income tax 591 821 277 521 739 850
Net Profit 1,355 557 -96 1,215 1,723 1,983
Net Profit (ex. minorities' interest) 1,376 626 181 1,285 1,793 2,053
Source: Company data, Credit Suisse estimates
Figure 42: POSCO—statement of financial position
(W bn) 2013A 2014A 2015A 2016E 2017E 2018E
Cash & cash equivalents 4,209 3,811 4,870 5,661 5,800 6,629
Receivables 13,049 13,464 10,849 9,773 10,234 10,395
Inventories 9,798 10,471 8,225 7,757 8,123 8,251
Other current assets 4,611 4,881 5,236 5,236 5,236 5,236
Investment assets 9,548 8,753 8,332 8,332 8,332 8,332
Tangible assets 35,760 35,241 34,523 34,439 34,350 34,269
Other non-current assets 7,481 8,631 8,373 8,373 8,373 8,373
Total assets 84,455 85,252 80,409 79,570 80,448 81,485
Payables 4,231 3,951 3,125 2,857 2,991 3,025
Short-term debts 7,357 9,244 8,416 8,416 8,416 8,416
Current portion of long-term debts 3,357 2,951 3,955 2,567 2,395 1,833
Other current liabilities 5,296 5,731 4,635 4,628 4,628 4,628
Bonds & long-term debts 15,533 15,233 12,849 12,918 12,591 12,652
Other long-term liabilities 2,859 2,851 2,358 2,358 2,358 2,358
Total liabilities 38,633 39,961 35,339 33,745 33,380 32,913
Shareholders' equity (net) 42,046 41,587 41,235 42,060 43,374 44,947
Minority interest 3,776 3,704 3,835 3,765 3,695 3,625
Total equity & liabilities 84,455 85,252 80,409 79,570 80,448 81,485
Source: Company data, Credit Suisse estimates
13 July 2016
POSCO
(005490.KS / 005490 KS) 21
Figure 43: POSCO—cash flow statement
(W bn) 2013A 2014A 2015A 2016E 2017E 2018E
Cash flow from operation 4,858 3,412 7,602 5,881 4,431 5,121
Net profit 1,355 557 -96 1,215 1,723 1,983
Depreciation and amortization 2,686 3,239 3,218 3,326 3,331 3,323
Severance provisioning 248 238 245 0 0 0
Changes in working capital -116 -1,914 2,754 1,270 -693 -255
Other operating cash flow 686 1,293 1,480 70 70 70
Cash flow from investments -8,752 -3,745 -4,535 -3,242 -3,242 -3,242
Capital expenditure -6,570 -3,506 -2,560 -2,860 -2,860 -2,860
Sale of tangible/ intangible asset 88 72 72 0 0 0
Acquisition of investments -6,432 -5,046 -13,579 0 0 0
Sale of investments 4,706 5,079 11,822 0 0 0
Other investing cash flow -544 -344 -289 -382 -382 -382
Cash flow of financing 3,422 147 -2,218 -1,778 -980 -980
Net increase of loans 2,339 758 -2,577 -1,319 -500 -500
Dividend -649 -677 -823 -640 -480 -480
New equity issued 0 0 0 0 0 0
Other financing cash flow 1,731 65 1,182 180 0 0
Cash at beg. of the period* 4,681 4,209 4,022 4,871 5,732 5,941
Net change of cash* -472 -186 849 861 209 899
Cash at end of the period* 4,209 4,022 4,871 5,732 5,941 6,840
*: Only include cash on hand and exclude cash equivalents. Source: Company data, Credit Suisse
estimates
Figure 44: POSCO — ratio analysis
Year-end 31 Dec 2013A 2014A 2015A 2016E 2017E 2018E
Sales growth (%) -2.7 5.2 -10.6 -7.0 4.7 1.6
EBITDA growth (%) -8.6 13.6 -12.8 7.2 6.2 5.2
Operating profit growth (%) -18.0 7.3 -25.0 12.4 13.6 11.0
Net profit growth (%) -43.2 -58.9 -117.3 -1,363.0 41.9 15.1
GP margin (%) 11.1 11.2 11.2 12.1 12.4 12.8
EBITDA margin (%) 9.2 9.9 9.7 11.1 11.3 11.7
OP margin (%) 4.8 4.9 4.1 5.0 5.4 5.9
NP margin (%) 2.2 0.9 -0.2 2.2 3.0 3.4
Net debt (W bn) 22,038 23,617 20,350 18,240 17,601 16,272
Net gearing (%) 48.1 52.1 45.2 39.8 37.4 33.5
Interest coverage (x) 8.6 8.1 7.1 8.2 9.0 9.7
Receivable turnover (days) 75.9 74.5 67.1 65.0 65.0 65.0
Inventory turnover (days) 57.8 58.7 51.6 51.6 51.6 51.6
Payable turnover (days) 29.0 25.9 23.0 23.0 23.0 23.0
# of outstanding shares (mn, YE) 87.2 87.2 87.2 87.2 87.2 87.2
EPS (W, fully diluted) 17,252 7,827 2,258 16,060 22,416 25,666
BVPS (W, fully diluted) 514,506 507,425 503,007 513,316 529,732 549,398
ROE (%) 3.4 1.5 0.4 3.1 4.2 4.6
ROA (%) 2.5 1.7 1.3 2.7 3.3 3.5
Dividend payout (%) 50.0 147.8 -665.4 39.5 27.9 24.2
Effective income tax rate (%) 30.4 59.6 153.2 30.0 30.0 30.0
Source: Company data, Credit Suisse estimates
13 July 2016
POSCO
(005490.KS / 005490 KS) 22
Companies Mentioned (Price as of 13-Jul-2016)
Angang Steel Company Ltd (0347.HK, HK$4.12) ArcelorMittal (MT.N, $5.62) Baosteel (600019.SS, Rmb4.9) China Steel (2002.TW, NT$21.55) Hana Financial Group (086790.KS, W23,750) Hyundai Heavy Industries (009540.KS, W106,500) Hyundai Steel Co. (004020.KS, W50,700) JFE (5411.T, ¥1,428) JSW Steel Ltd (JSTL.BO, Rs1541.8) KB Financial Group (105560.KS, W33,400) Kobe Steel (5406.T, ¥92) Maanshan Iron & Steel Co Ltd (0323.HK, HK$1.89) Magnitogorsk Steel (MAGNq.L, $5.26) Nippon Steel & Sumitomo Metal (5401.T, ¥2,092) Novolipetsk Steel (NLMKq.L, $13.7) POSCO (005490.KS, W227,000, OUTPERFORM, TP W280,000) Posco Daewoo (047050.KS, W23,700) Severstal (SVSTq.L, $10.9) Shinhan Financial Group (055550.KS, W38,550) Steel Authority of India Ltd (SAIL.BO, Rs49.5) Tata Steel Ltd (TISC.BO, Rs342.4) United States Steel Corp. (X.N, $21.11) Wuhan Iron & Steel Co. Ltd (600005.SS, Rmb2.76)
Disclosure Appendix
Important Global Disclosures
I, Minseok Sinn, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for POSCO (005490.KS)
005490.KS Closing Price Target Price
Date (W) (W) Rating
25-Jul-13 327,000 350,000 N
29-Jan-14 298,500 330,000
25-Jul-14 326,000 350,000
12-Aug-14 325,500 400,000 O
05-Feb-15 262,000 330,000
21-Apr-15 253,000 300,000
15-Jul-15 209,000 270,000
20-Oct-15 179,500 240,000
15-Jan-16 161,500 210,000
02-Mar-16 211,500 240,000
21-Apr-16 248,500 280,000
* Asterisk signifies initiation or assumption of coverage.
N EU T RA L
O U T PERFO RM
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst 's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representi ng the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 1 2-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18
13 July 2016
POSCO
(005490.KS / 005490 KS) 23
May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, wh ich was in operation from 7 July 2011.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.
Not Rated : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time.
Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
*An analyst’s coverage sector consists of a ll companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 51% (41% banking clients)
Neutral/Hold* 36% (17% banking clients)
Underperform/Sell* 13% (38% banking clients)
Restricted 0%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Out perform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
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Target Price and Rating Valuation Methodology and Risks: (12 months) for POSCO (005490.KS)
Method: Our target price of W280,000 for POSCO implies 0.55x 2016E P/B (price-to-book) referring the stock's 3-year average multiple. We like the company's protective operational nature with efficient cost structure, which allows it to maintain higher utilisation and relatively lower earnings volatility under current over-capacity and uncertain demand outlook and therefore we maintain our OUTPERFORM rating.
Risk: The primary risk to our W280,000 target price and OUTPERFORM rating for POSCO is a potential economic downturn in China and global economies, which would have a negative impact on our forecasts for this heavy commodity-oriented company. Management’s consideration of dividend cut, revealed on 21 Apr in the 1Q16 earnings call, another key risk factor given high yield has been one of the stock's key appealing points .
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names
The subject company (005490.KS) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.
13 July 2016
POSCO
(005490.KS / 005490 KS) 24
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (005490.KS) within the next 3 months.
Please visit https://credit-suisse.com/in/researchdisclosure for additional disclosures mandated vide Securities And Exchange Board of India (Research Analysts) Regulations, 2014
Credit Suisse may have interest in (JSTL.BO, SAIL.BO, TISC.BO)
Credit Suisse beneficially holds >0.5% short position of the total issued share capital of the subject company (005490.KS).
For a history of recommendations for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to https://rave.credit-suisse.com/disclosures/view/report?i=237584&v=-73sj5gyn0w2732pwjuex3yuy6 .
Important Regional Disclosures
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As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.
Principal is not guaranteed in the case of equities because equity prices are variable.
Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
This research report is authored by:
Credit Suisse Securities (Europe) Limited, Seoul Branch .......................................................................................... Minseok Sinn ; Hoonsik Min
To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Credit Suisse Securities (Europe) Limited, Seoul Branch .......................................................................................... Minseok Sinn ; Hoonsik Min
For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.
13 July 2016
POSCO
(005490.KS / 005490 KS) 25
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