1Q21 Earnings Likely to Arrive Solid
The author is an analyst of NH Investment & Securities. He can be reached at will.byun@nhqv.com. -- Ed.
Helped by metal price hikes, Korea Zinc’s 1Q21 earnings are to arrive solid. Metal prices have weakened as of late, and the zinc concentrate benchmark TC has also fallen sharply. But, we maintain a Buy rating, taking into account Korea Zinc’s stable profit generation and attractive DY, as well as economic recovery expectations.
2021 zinc concentrate benchmark TC drops to US$159/ton
We maintain a Buy rating and a TP of W495,000 on Korea Zinc. Although its sales will likely decrease this year on a decline in the 2021 zinc concentrate benchmark TC, we expect price hikes for major metal products (zinc +25.2%, lead +7.7%, silver +25.0% y-y) to translate into a 3.3% y-y rise in full-year consolidated OP. With the firm’s shares currently trading at a 2021E P/E of 12.0x, we see attractive 2021E DY of 3.6%. Taking a long-term investment perspective, we maintain a Buy rating.
According to media reports, Korea Zinc and Teck Resources have agreed to a 2021 zinc concentrate TC of US$159/ton, representing a US$140.75 decrease from the 2020 figure (US$299.75) and falling significantly short of our estimate of US$200. TCs from January~March (to which the 2020 benchmark had been applied) are expected to be retroactively reflected in 2Q21 earnings.
1Q21 preview: Consolidated OP to come in above consensus
On a consolidated basis, we expect Korea Zinc to register 1Q21 sales of W2.1tn (+23.4% y-y, -5.0% q-q), OP of W271.0bn (+32.7% y-y, +3.5% q-q), and NP (excl minority interests) of W189.9bn (+37.8% y-y, +24.9% q-q), beating market expectations by 3.7%, 9.7%, and 9.7%, respectively. We size 1Q21 standalone OP at W222.9bn (+13.2% y-y, +10.6% q-q).
On a q-q basis, the zinc, lead and silver prices used for the estimates (one-month lagging) rose by +9.1%, 9.6%, and +5.5% in 1Q21, in turn likely driving profit growth. Meanwhile, we believe that a temporary weakness in metal prices at end-March had a brief positive influence on adjusted costs.