POSCO Rides On Business Expansion Amid Volatile Exchange Rate
Zacks Investment Research | Dec 30, 2018 09:14PM ET
On Dec 28, we issued an updated research report on POSCO (NYSE:PKX) . The company’s performance will be backed by its focus on mergers as well as business expansion, strong demand, and improvement in steel export. However, its results might be marred by volatile exchange rate.
Let’s illustrate these factors in detail.
Strong Demand Supports POSCO
For 2018, POSCO now anticipates consolidated revenues of around KRW 64.8 trillion, up from previous expectation of KRW 63 trillion. Moreover, improving steel demand will drive its performance.
POSCO to Gain From Mergers and Business Expansion
POSCO will benefit from mergers and business expansion. The company remains focused on the merger of POSCO Chemtech, which produces anode material, and a cathode producer engaged in secondary battery material business, namely POSCO ESM. The merger is currently under review. This is likely to boost the battery business and enable it to gain synergies in first-half 2019.
Improvement in Steel Export to Drive Growth
Improving steel export will create solid business opportunities for POSCO. Notably, average export price was 5-7% higher in third-quarter 2018 than domestic price. While the possibility of domestic price increase is limited, export price is increasing, supported by the positive global economy.
Volatile Exchange Rate Remains a Woe
POSCO expects performance of overseas steel in 2019 to be similar to 2018. Due to the volatile exchange rate, some investors are apprehensive about the overseas subsidiaries in emerging markets. The domestic market in Turkey can be hurt by the negative effect of exchange rate and interest rate rise.
Share Price Performance
In a year’s time, POSCO’s ADR has lost around 30% compared with 28% decline recorded by the Zacks Investment Research
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