Metal Prices Continuing to Recover
The author is an analyst of KB Securities. He can be reached at swhong@kbfg.com. -- Ed.
Maintain BUY and target price of KRW500,000
We maintain BUY and our TP of KRW500,000. In our three-stage dividend discount model, we maintained our previous assumptions for stage-1 dividends and terminal payout ratio and made marginal revisions to our earnings forecasts. We maintain our rating because our TP has 24.4% upside (vs. last closing price).
3Q20 forecast: Consolidated OP of KRW212.0bn in line with market consensus
For 3Q20, we estimate consolidated revenue/OP of KRW1.86tn (+7.4% YoY)/KRW212.0bn (+1.5% YoY; 11.4% OPM), in line with the market consensus of KRW1.75tn/KRW202.7bn. On a standalone basis, our revenue/OP forecasts are KRW1.42tn (+9.1% YoY)/KRW207.8bn (+13.8% YoY; 14.6% OPM). By division, earnings contributions from primary materials (concentrate) should be 35% for TC, 19% for free metals, 32% for by-products and 15% for premium; following 2Q20, bullish prices for precious metals raised the contribution from by-products.
Metal prices continuing to recover
Better pricing for TC and precious metals should offset declines in base metal prices in 2020. The sales guidance for gold/silver was raised by 10%/16% to 8.5/2,300t after 2Q20 earnings results were released, and major metal prices have continued to improve after the April trough. In terms of avg. LME prices between April and August, zinc/lead/copper rose 27%/17%/29% to USD2,529/USD1,984/USD6,506, with gold/silver prices up 17%/78%.
2020E avg. silver price raised by 11.3%
The full-fledged recovery in metal prices has been attributable to tightening supply-demand dynamics for concentrates. While China, the world’s largest consumer of industrial metals, was the first to support demand after emerging from the COVID-19 pandemic, major mining areas in the Southern Hemisphere, which was hit by the pandemic shortly after, saw activity slow. We raised 2020E avg. silver price by 11.3% to USD21.30 to reflect the price rally following July.