EV Demand And Green Steel Will Revolutionize Markets

Key Takeaways

• Strategic divestment and reinvestment into high-return, greenfield projects could drive net margins and returns well above prevailing expectations.
  
• Pioneering green steel, digital automation, and regional partnerships position POSCO for sustained profit growth and industry-leading operational efficiency.
  
• Environmental pressures, global oversupply, declining demand, and technological shifts threaten POSCO's profitability, requiring costly transitions that may compress margins and increase volatility.

Catalysts

Operates as an integrated steel producer in Korea and internationally.

• Analyst consensus anticipates gradual improvement in battery materials ramp-up and plant stabilization, but surging demand from global EV and energy transition markets could enable POSCO to operate substantially above nameplate capacity, drastically accelerating revenue and EBITDA growth once lithium prices normalize.
  
• While analysts broadly expect restructuring and asset optimization to modestly boost margins, POSCO's aggressive divestment of low-yield assets and rapid capital redeployment into high-ROIC greenfield projects could deliver a structural uplift in net margins and return on invested capital well beyond consensus forecasts.
  
• POSCO's early, large-scale investment in hydrogen-based steelmaking, coupled with anticipated global carbon taxes and green steel premiums, positions the company to capture outsized share in premium, decarbonized steel markets-potentially driving accelerated revenue growth and above-peer operating profit margins over the long term.
  
• As urbanization and infrastructure booms in Southeast Asia and India intensify, POSCO's expanding upstream joint ventures and direct government partnerships will likely allow the company to leverage pricing power and secure long-term contracts, delivering resilient volume growth and improved earnings visibility.
  
• The integration of digital and AI-driven automation across both mining and steelmaking operations promises breakthrough gains in operational efficiency and structural cost reductions, materially improving EBITDA margins and expanding net profit far ahead of industry averages as adoption scales.

POSCO Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on POSCO Holdings compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming POSCO Holdings's revenue will grow by 10.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 1.2% today to 4.5% in 3 years time.
• The bullish analysts expect earnings to reach ₩4366.0 billion (and earnings per share of ₩57394.4) by about July 2028, up from ₩856.5 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 11.6x on those 2028 earnings, down from 29.6x today. This future PE is greater than the current PE for the US Metals and Mining industry at 10.8x.
• Analysts expect the number of shares outstanding to decline by 0.34% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.93%, as per the Simply Wall St company report.

POSCO Holdings Future Earnings Per Share Growth

Risks

• Global decarbonization pressures and accelerating carbon taxes will require ongoing heavy investments in low-carbon steel production, raising operational and compliance costs, which is likely to compress net margins and reduce free cash flow for several years.
  
• Persistent global steel overcapacity, particularly from China's oversupply and the emergence of intensifying competition in Southeast Asia, depresses steel prices, which continues to erode mill margins and puts significant pressure on POSCO's overall revenue and profitability.
  
• Structural demand declines linked to weak population growth and construction slowdowns in key markets like China and South Korea threaten long-term steel volumes, creating potential stagnation or contraction in POSCO's top-line revenue growth over time.
  
• Technological substitutions, such as the rise of lightweight composites and competing materials in automotive and other end markets, as well as cyclical exposure to industries like shipbuilding and autos, could erode POSCO's steel and specialty product volumes, increasing volatility and downward pressure on both revenues and earnings.
  
• Legacy and ongoing environmental liabilities arising from outdated or carbon-intensive operations, as well as potential regulatory fines, remediation expenses, and rising SG&A associated with restructuring and asset impairments, could continue to weigh on net margins and shareholder returns, particularly as the company navigates large-scale business transitions.

Valuation

• The assumed bullish price target for POSCO Holdings is ₩513030.59, which represents two standard deviations above the consensus price target of ₩375130.43. This valuation is based on what can be assumed as the expectations of POSCO Holdings's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₩520000.0, and the most bearish reporting a price target of just ₩225000.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be ₩97806.9 billion, earnings will come to ₩4366.0 billion, and it would be trading on a PE ratio of 11.6x, assuming you use a discount rate of 9.9%.
• Given the current share price of ₩335000.0, the bullish analyst price target of ₩513030.59 is 34.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.