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Strengthened shareholder return policy

4Q24 review: Earnings affected by economic slowdown and mild weather

For 4Q24, POSCO International reported revenue of W7.94tr (+0.4% YoY). While revenue declined for key businesses such as steel (-3.6% YoY) and agri-bio (-2.7% YoY), growth at trading subsidiaries (+9.9% YoY) helped shore up top line.

Operating profit fell 33% YoY to W144.6bn, partly due to one-off costs related to plant maintenance and investment subsidiaries. However, the decline was mainly driven by overall weak market conditions. The power generation business swung to a loss of W1.7bn (vs. operating profit of W36.6bn in 4Q23) due to a lower system marginal price (SMP), and steel operating profit dropped 46% YoY to W34.4bn due to sluggish market conditions.

Targeting pretax profit CAGR of at least 8% and 50% shareholder return ratio

Under its shareholder value enhancement plan for 2025-27 (announced at end-2024), POSCO International is targeting: 1) a 50% shareholder return ratio; 2) interim dividends in 2025; 3) pretax profit CAGR of at least 8%; and 4) an ROIC of over 8%. To achieve these goals, the company will focus on: 1) strengthening its market presence in existing businesses (energy and food); 2) promoting synergies with group affiliates (steel and mobility); and 3) prioritizing capital efficiency in decision-making.

The 50% shareholder return target is especially noteworthy in the near term, given that the payout ratio for 2023 was 25%. Indeed, the company announced a 2024 DPS of W1,550 on Feb. 3, which translates to a 50% payout ratio and 3.7% yield (based on the current stock price). The dividend record date is likely to be at end-March. All in all, the stock’s dividend appeal (which became less relevant following the 2023 rally) should come back into focus.

Lower TP to W55,000, but maintain Buy

Reflecting weak 4Q24 results and unfavorable industry conditions, we lowered our operating profit forecast for 2025 by 11%. Accordingly, we cut our target price to W55,000 (from W65,000). Our target price is based on a sum-of-the-parts (SOTP) valuation and corresponds to a 2025F P/E of 11x. While market conditions for key businesses (e.g., steel) are unfavorable, further downside seems limited, and E&P momentum remains intact. The current valuation (12-month forward EV/EBITDA of 7x) looks attractive in light of the firm’s enhanced shareholder return policy.