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Another earnings surprise

3Q24 review: OP beats consensus and sets another quarterly record

For 3Q24, POSCO International reported revenue of W8.36tr (+3.9% YoY). Despite a slowing economy, revenue continued to expand on strong exports to Europe/Asia along with robust sales of steel raw materials. Notably, power generation revenue picked up 20% YoY, driven by higher utilization.

Operating profit came in at W357.2bn (+15% YoY), setting another quarterly record. For the Myanmar gas field project, operating profit declined 4% YoY due to gas pipeline maintenance/repairs and reduced cost recovery effects. However, overall operating profit in the energy segment grew 4% YoY on the back of profit growth for power generation (+22% YoY), Australian subsidiary Senex Energy (+3% YoY), and terminal operations (+115% YoY). In the materials segment, operating profit expanded 29% YoY, with strong trading profits (+63% YoY) offsetting declines in steel (-11% YoY) and eco-friendly materials (-24% YoY).

Despite the strong results, management kept its 2024-25 guidance mostly unchanged due to the sluggish performance in steel and eco-friendly materials in 3Q24 as well as the weak outlook for power generation and trading/investments in 4Q24.

Increased production at Senex and the Blue Whale project

While earnings in the materials segment are likely to improve significantly, we believe the energy segment (especially E&P projects) will be the key driver of growth and profitability in the coming years. We expect the Myanmar gas field project and Senex to continue generating stable profits. In particular, we look for structural profit growth at Senex in line with expanded production (estimated at 60PJ in 2026 vs. 26PJ in 2024).

There are also positive expectations surrounding gas field exploration projects in Southeast Asia and the East Sea. The East Sea gas field project (dubbed “Blue Whale”) is set to commence drilling in December, with results expected in 1Q25.

Maintain Buy and TP of W65,000

We maintain our Buy rating and target price of W65,000 on POSCO International. While the Myanmar gas field project has experienced a temporary slowdown, we still expect momentum to come from development/exploration and asset acquisitions planned for 2025. Considering strong cash flow in the energy segment and investments in future growth drivers in the materials segment (battery materials and motor cores), we believe the stock is undervalued at current levels (EV/EBITDA of 8x).