Asian Oversupply And Production Delays Will Undermine Prospects

Key Takeaways

• Heavy investment in battery materials and decarbonization exposes POSCO to risk, as delayed execution and market challenges may not offset stagnant steel performance.
  
• Global steel oversupply, trade protectionism, and competition from alternative materials undermine POSCO's pricing power and growth prospects despite internal cost controls.
  
• Expansion into battery materials, supply chain integration, and green technologies positions POSCO for sustained growth and profitability as global EV and infrastructure demand rises.

Catalysts

Operates as an integrated steel producer in Korea and internationally.

• Despite heavy investment in battery materials, delays in ramping up production and ongoing customer certification issues, coupled with sustained declines in lithium prices and operating losses in new plants, raise the risk that diversification will be insufficient to offset flat or falling steel revenues, leading to ongoing drag on consolidated earnings.
  
• The persistent global oversupply of steel, particularly from China and India, is likely to depress steel prices and limit POSCO's ability to capture margin improvement, making sustainable revenue growth difficult despite internal cost-cutting and facility upgrades.
  
• Increasing geopolitical tensions and trade protectionism, including high tariffs and quotas in key export markets like the US and EU, are expected to constrain export volumes and erode POSCO's top-line, especially as the company's domestic demand outlook is also pressured by demographic stagnation in South Korea and Japan.
  
• Ongoing high capital expenditures and R&D spend-exemplified by massive commitments to decarbonization (such as the HyREX project) and asset restructuring-expose POSCO to elevated financial leverage and the risk that returns may not materialize quickly enough, placing downward pressure on net margins and cash flows over the medium to long term.
  
• Competition from lower-cost producers and rising substitution risk from materials such as aluminum and composites are poised to further reduce end-market demand for POSCO's core steel products, increasing the risk of underutilized assets and lower EBITDA margins as structural industry shifts accelerate.

POSCO Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on POSCO Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming POSCO Holdings's revenue will decrease by 0.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 0.7% today to 2.8% in 3 years time.
• The bearish analysts expect earnings to reach ₩1980.1 billion (and earnings per share of ₩24437.51) by about August 2028, up from ₩509.9 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 bearish analyst cohort, the company would need to trade at a PE ratio of 16.4x on those 2028 earnings, down from 45.6x today. This future PE is greater than the current PE for the US Metals and Mining industry at 10.6x.
• Analysts expect the number of shares outstanding to grow by 6.77% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.86%, as per the Simply Wall St company report.

POSCO Holdings Future Earnings Per Share Growth

Risks

• POSCO Holdings' ongoing strategic shift into battery materials and vertical integration across lithium and nickel supply chains positions the company for accelerated growth as global EV adoption and energy storage drive long-term demand for these critical minerals, supporting revenue and profit expansion.
  
• Persistent urbanization and infrastructure growth across Asia and emerging markets underpin stable, high-quality steel demand for construction, mobility, and manufacturing, likely to provide POSCO with sustained top-line and operational cash flow growth.
  
• The company's investments in green and low-carbon steel technologies such as its HyREX project and the adoption of AI and automation to improve efficiency are reducing costs and improving margins, which may structurally enhance long-term profitability.
  
• Divestment of loss-making assets and proactive portfolio management-such as the sale of the PZSS subsidiary-are expected to unlock cash flow, streamline operations, and reduce earnings volatility, potentially leading to an eventual uplift in EBITDA margins and net income.
  
• Successful scaling and customer certification of new lithium production facilities and supply agreements with global battery makers could position POSCO to capture market share in the fast-growing rechargeable battery materials sector, driving long-term revenue and earnings growth.

Valuation

• The assumed bearish price target for POSCO Holdings is ₩265907.18, which represents two standard deviations below the consensus price target of ₩398173.91. 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 more bearish 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 bearish analysts, you'd need to believe that by 2028, revenues will be ₩71368.9 billion, earnings will come to ₩1980.1 billion, and it would be trading on a PE ratio of 16.4x, assuming you use a discount rate of 9.9%.
  
• Given the current share price of ₩307500.0, the bearish analyst price target of ₩265907.18 is 15.6% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.