We issued an updated research report on POSCO PKX, a South Korean steel producer, on Mar 4, 2015.
On the basis of output, POSCO is one of the largest steel producers in the world, having produced roughly 37.7 million tons of crude steel in 2014. The company primarily serves the automobile, ship building, home appliance and construction industries. Products are sold mostly over the Korean markets as well as exported to different parts of Asia, especially China and Japan, and also in Europe, the Middle East and North America.
With a well diversified portfolio and international presence, POSCO is working diligently to enhance its steel-production capabilities, so as to benefit from the growing steel demand worldwide. For 2015, the company targets to increase its global sales volume by 3.8% to 50 million tons; and anticipates capital spending, directed toward improvement of its core business, to approximately total KRW 4.2 trillion.
Despite solid long-term growth prospects, the presence of headwinds cannot be ruled out completely. Rising costs and expenses as well as competitive threats can prove to be major deterrents to POSCO’s growth. The company’s 2014 results were disappointing as net earnings fell 59% year over year, due primarily to an increase in cost of sales as well as selling and administrative expenses.
Also, POSCO is a highly leveraged company, with non-current liabilities of KRW 18 trillion, exiting 2014. The company’s liabilities to equity ratio stood at 88.2% in 2014, up from 84.3% in 2013. Also, its return on equity (“ROE”) fell to 1.2% in 2014 from 3.1% in 2013.
POSCO competes with other industry players including Kobe Steel Ltd. KBSTY, ThyssenKrupp AG TYEKF and LB Foster Co. FSTR. Further, with operations spread over a number of countries, the steelmaker is exposed to geopolitical and foreign currency fluctuation risks.
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