Elevator Pitch
I retain my Neutral rating on POSCO (NYSE:PKX) [005490:KS].
POSCO's share price rose slightly by +2.7% from KRW239,000 as of November 16, 2020 to KRW245,500 as of January 29, 2021, since I published my initiation article for POSCO on November 17, 2020. POSCO is valued by the market at 0.43 times trailing P/B and 8.5 times consensus forward FY 2021 P/E, and the stock offers a consensus forward FY 2021 dividend yield of 3.8%.
POSCO's 4Q 2020 financial performance was satisfactory with full-year revenue above management guidance, and the near-term outlook for the core steel business is positive with expectations of higher steel prices. Separately, POSCO has set a three-year new revenue mix target which should help the company reduce its cyclicality to a certain degree, and this could possibly lead to a positive re-rating of the company's valuations in time to come.
POSCO's share price has increased by +22% in the past six months, implying that the recovery in the steel market has already been factored into the stock's valuations to some extent. Furthermore, POSCO still deserves to trade below book and below 10 times forward P/E, considering the inherent cyclicality of the company's core steel business. It will take some time for POSCO to further diversify its revenue mix, before the market is willingly to narrow its discount assigned to the stock, which suggests that this is more of a medium-term catalyst. As such, I maintain a Neutral rating on POSCO.
Do note that POSCO's Korea-listed shares have higher trading liquidity as compared to its U.S.-listed ADRs. The three-month average daily trading value for POSCO's shares listed in Korea was $92 million, while the ADRs' three-month average daily trading value was lower at $7 million. International stock brokerages such as Singapore's OCBC Securities and Monex Boom Securities in Hong Kong can be
Asia Value & Moat Stocks is a research service for value investors seeking value stocks with a huge gap between price and intrinsic value, leaning towards deep value balance sheet bargains (i.e. buying assets at a discount e.g. net cash stocks, net-nets, low P/B stocks, sum-of-the-parts discounts) and wide moat stocks (i.e. buying earnings power at a discount in great companies like "Magic Formula" stocks, high-quality businesses, hidden champions and wide moat compounders). Sign up here to get started today!
