Jim
how about a hedge for RECY in the portfolio
Pohang: Why This Stock is a "Steel" (10/16)
Individual Investor Online Analysis
The economic carnage of 1998 has wrought extreme havoc on global exporters. Rapidly shifting currencies have strained balance sheets and made entire economies uncompetitive. But some firms have actually benefited from the chaos. Case in point: Korean based-Pohang Iron and Steel (NYSE: PKX), which is widely regarded as the world's lowest-cost producer of quality steel products.
The company's ADRs have hit all-time lows due to the combined effect of the sell-off in Korean stocks. Pohang's ADR recently hit $10 per share, down from a 52-week high of $25 and its all-time high of $35. Although the ADR has since climbed back to $18.13, it is still trading at only 9.1 times the consensus 1998 earnings-per-ADR estimate of $2.00 and 7.4 times the 1999 estimate of $2.45. In addition it trades just above book its value of $17 per share and sports a 1.7% dividend yield.
Moreover, the turmoil in Korea has actually worked in the company's favor. Almost all of Pohang's sales are tied to the world steel export price which is dollar denominated, while over 60% of its operating costs - everything except raw materials and interest payments - are won denominated. When the value of the Korean won plummeted, so did the company's operating costs. And the weaker the won, the stronger the competitive position of Pohang.
"Outstanding"
PaineWebber analyst Peter Marcus calls Pohang's earnings prospects "outstanding." He expects Pohang's earnings per ADR to rise above $4.00 in the 1999-2001 time frame and has a 12-month price target of $34 per ADR.
Despite the fact that local demand for Pohang steel has fallen, the company's efficient blast furnaces-which produce pig iron at $40 a metric ton less than comparable producers in the United States-have kept the company profitable throughout the global financial crisis.
This quick conversion data should help you make sense of the numbers:
1 Metric Ton = 2,240 Pounds
Even in constant-won terms (assuming 1,400 won per U.S. dollar), the company has lowered costs by $3.04 per ADR since 1996, according to Marcus.
The recent fall in demand has caused the price of steel in the South Korean market to drop below $300 per metric ton, which is over $100 per metric ton less than other markets, where steel prices have also fallen. This leaves considerable upside for Pohang when the price of steel rebounds, which Marcus expects to occur in 1999 or 2000. If it does, he expects Pohang's after-tax profit to rise to $60 per metric ton shipped, which is approximately $4.25 per ADR.
Of course investing in Pohang also comes with risks. Steel prices could drop yet further if the Asian economies slip from recession to depression. And the shares will probably be constrained as long as the broader Korean market stays down.
Bottom Line:
With the price of steel near multi-year lows and the stock price near all-time lows, the risk-reward ratio is quite favorable.
Analyst: Caroline Jones
PKX Analysis Archive
I.I. Online's profiles are condensed reports on companies that may be attractive investment opportunities. You should thoroughly investigate any company presented here before making any investment decisions.
POHANG IRON & STEEL CO LTD, SPONSORE News
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Updated (EDT) 16:00
Last Sale $17.19
Net Change -0.94
Day's High $17.50
Day's Low $16.94
Volume (000s) 228.10
Bid $17.00
Ask $17.31
52-week High $25.18
52-week Low $10.00
Trailing EPS 1.16
Trailing P/E 14.8
Mkt.Cap (mil) $1,588.9
PKX 6 month performance
Company Description
POHANG IRON & STEEL CO LTD, SPONSORE
is a steel producer.
ht
david |
