The author is an analyst for NH Investment & Securities. He can be reached at jaekwang.rhee@nhqv.com -- Ed.
Buoyed by increased sales volume and prices, Korea Zinc’s 4Q23 earnings should display q-q improvement. Over the mid/long term, we expect the copper and nickel smelting businesses to lead the firm’s growth. Korea Zinc is targeting annual smelting capacity of 150,000 tons of copper and 63,000 tons of nickel by 2028.
To reproduce zinc & lead-driven growth via increased copper & nickel smelting
Copper and nickel smelting is expected to lead Korea Zinc’s future growth. The company is planning to boost its annual copper smelting capacity from 26,000 tons to 150,000 tons by 2028. At the current copper price of US$8,500/ton, related annual sales should reach approximately W1.6tn. Korea Zinc is also targeting 63,000 tons of nickel smelting capacity by 2028, which translates into annual sales of around W1.3tn when applying the current nickel price of US$16,000/ton.
When combined, we forecast additional annual sales of roughly W2.9tn, which equates to 29% of the firm’s 2023E sales of W10tn. In addition, with the company unlikely to stop at copper/nickel smelting, further upgrades to include a significant portion of copper foil/nickel sulfate processing promise to deliver additional sales expansion. For reference, Korea Zinc’s guidance presented at its Dec 2023 Investor Day included 2028 sales of W21.3tn and EBITDA of W2.3tn.
In summary, Korea Zinc is expected to replicate the qualitative and quantitative growth it has shown in zinc and lead smelting in the past in copper and nickel smelting, where future demand growth is anticipated.
4Q23 preview: Sales up q-q on increased sales volume and prices
We forecast 4Q23 sales of W2.45tn (+6.9% q-q) and OP of W186bn (+15.8% q-q; OPM of 7.6%), in line with consensus. Earnings growth (q-q) was likely driven by sales volume expansion for lead (+38.9% q-q) and copper (+59.9% q-q), alongside ASP hikes for zinc (+4.8% q-q), lead (+3% q-q), and gold (+3% q-q).