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Valuation gap to narrow

Maintain Buy and raise TP to W65,000

We maintain our Buy rating on POSCO International and raise our target price to W65,000. Our target price is based on a sum-of-the-parts valuation (combining the values of the global and energy businesses) and implies an EV/EBITDA of 10x. We believe the company’s valuation gap with Japanese trading companies will narrow thanks to: 1) structural margin improvements at the trading division; and 2) the expansion of eco-friendly businesses.

3Q23 review

For 3Q23, the company reported revenue of W8.05tr (-11% YoY) and operating profit of W311.7bn (OP margin of 3.9%). Operating profit missed the consensus, but the trading division maintained higher profitability than historical levels, with an OP margin of 1.7%. In our view, the trading division’s structural margin improvement justifies a valuation re-rating. We revised up our operating profit forecasts for 2023 and 2024 by 14% and 24%, respectively.