rico1181 Posted December 11, 2014 Share Posted December 11, 2014 Alex/Alwaysinvert: Thank you for your posts on PKX. I learned a lot. I agree that PKX is one of the best steel manufacturers globally and is trading at very low valuations. But I can't see how PKX will go back to its long term average valuation levels in the absence of steel price increases and/or higher capacity utilization. I fail to see a hard tangible catalyst. There is no doubt in my mind that China's slowdown will hurt steel prices as well as other commodities. But even in that scenario China's communist government may continue to subsidize steel manufacturers to maintain local employment levels. I feel uncomfortable betting on the Chinese government to act rationally. I feel like the risk of PKX getting squeezed between dominant raw materials providers (3-4 players control the market) and China (by far one of the largest consumers of steel) is high. I have looked at PKX a couple of times but each time I decided to put it in the too hard pile. May be you can help me figure out what I am missing. Link to comment Share on other sites More sharing options...
jawn619 Posted December 11, 2014 Share Posted December 11, 2014 Alex/Alwaysinvert: Thank you for your posts on PKX. I learned a lot. I agree that PKX is one of the best steel manufacturers globally and is trading at very low valuations. But I can't see how PKX will go back to its long term average valuation levels in the absence of steel price increases and/or higher capacity utilization. I fail to see a hard tangible catalyst. There is no doubt in my mind that China's slowdown will hurt steel prices as well as other commodities. But even in that scenario China's communist government may continue to subsidize steel manufacturers to maintain local employment levels. I feel uncomfortable betting on the Chinese government to act rationally. I feel like the risk of PKX getting squeezed between dominant raw materials providers (3-4 players control the market) and China (by far one of the largest consumers of steel) is high. I have looked at PKX a couple of times but each time I decided to put it in the too hard pile. May be you can help me figure out what I am missing. Lower input costs/new CEO selling non core assets is not enough of a catalyst? Link to comment Share on other sites More sharing options...
kab60 Posted December 11, 2014 Share Posted December 11, 2014 Plus there's a chance that korean companies will turn more shareholder friendly due to government pressure? Link to comment Share on other sites More sharing options...
alwaysinvert Posted December 11, 2014 Share Posted December 11, 2014 Alex/Alwaysinvert: Thank you for your posts on PKX. I learned a lot. I agree that PKX is one of the best steel manufacturers globally and is trading at very low valuations. But I can't see how PKX will go back to its long term average valuation levels in the absence of steel price increases and/or higher capacity utilization. I fail to see a hard tangible catalyst. There is no doubt in my mind that China's slowdown will hurt steel prices as well as other commodities. But even in that scenario China's communist government may continue to subsidize steel manufacturers to maintain local employment levels. I feel uncomfortable betting on the Chinese government to act rationally. I feel like the risk of PKX getting squeezed between dominant raw materials providers (3-4 players control the market) and China (by far one of the largest consumers of steel) is high. I have looked at PKX a couple of times but each time I decided to put it in the too hard pile. May be you can help me figure out what I am missing. I don't really look for catalysts. I don't know more about China and the macro picture than any of you guys. For me that stuff is pretty much unknowable. I just chose to buy the best company I could find in a business which has been hurting for many years now, but I have been wrong for 1.5 years, despite capital allocation improvements and easing on input costs. It's a game of imperfect information and I can't really say that you are wrong to worry about those things, but to me it has looked like those fears have been baked in to the price for a long time. Obviously the market disagrees. We'll see what happens with the Chinese exports, aggregate demand and operating margins, I guess. Link to comment Share on other sites More sharing options...
topofeaturellc Posted December 12, 2014 Share Posted December 12, 2014 While I think Posco is cheap, think it's lack of vertical integration is fine, and China is a secondary issue and not as big a deal as the headlines sound because realistically only a few Chinese steelmakers can complete with them on grade - I think it's quite likely a worse business today than it had been historically. You should take a look at how the local market structure has changed as well as the cost competitiveness relative to NSSM and JFE with the yen deval. I wouldn't be comfortable betting on a return to historic returns on capital tho. Link to comment Share on other sites More sharing options...
karthikpm Posted December 12, 2014 Share Posted December 12, 2014 Another Barron's article.. http://online.barrons.com/articles/warren-buffett-thinks-posco-looks-cheap-1418174920 Link to comment Share on other sites More sharing options...
AzCactus Posted December 12, 2014 Share Posted December 12, 2014 Another Barron's article.. http://online.barrons.com/articles/warren-buffett-thinks-posco-looks-cheap-1418174920 It's funny how other than the beginning and the end there is no mention of Buffett. He bought these shares about 7 years ago and the title mentions "he thinks they are cheap." Link to comment Share on other sites More sharing options...
jawn619 Posted December 12, 2014 Share Posted December 12, 2014 Tangible book value as of the Sept quarter is 96.78 Down from around 115 a quarter ago BV down from 125 to 107 http://www.gurufocus.com/term/Tangibles_book_per_share/PKX/Tangible%2BBook%2BValue%2Bper%2BShare/POSCO I originally thought i was buying a dollar or more for .65 , but with tangible book evaporating, it's more like buying .75 for .60, which is not a lot of MOS. Any thoughts on this way of thinking? Link to comment Share on other sites More sharing options...
rsmehta Posted December 12, 2014 Share Posted December 12, 2014 Tangible book value as of the Sept quarter is 96.78 Down from around 115 a quarter ago BV down from 125 to 107 http://www.gurufocus.com/term/Tangibles_book_per_share/PKX/Tangible%2BBook%2BValue%2Bper%2BShare/POSCO I originally thought i was buying a dollar or more for .65 , but with tangible book evaporating, it's more like buying .75 for .60, which is not a lot of MOS. Any thoughts on this way of thinking? If people are using P/B as a metric on how PKX is so cheap since the beginning of this thread, I don't think anyone can argue your logic here. ------------------------------------------- Just how low can this go. Very strong GM/OM numbers for Q4(since all input costs for steel have collapsed 20-30%+ in past 120 days) should help lift this stock. Steel prices are holding up fairly strong though. Not a bad time to double down. Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted December 12, 2014 Share Posted December 12, 2014 Tangible book value as of the Sept quarter is 96.78 Down from around 115 a quarter ago BV down from 125 to 107 http://www.gurufocus.com/term/Tangibles_book_per_share/PKX/Tangible%2BBook%2BValue%2Bper%2BShare/POSCO I originally thought i was buying a dollar or more for .65 , but with tangible book evaporating, it's more like buying .75 for .60, which is not a lot of MOS. Any thoughts on this way of thinking? I'm not in a position to pull accurate figures from filings, but the drop in intangible BV per share, as per your link, is a result of increasing intangibles and not decreasing tangible value. Since you subtract intangibles out of total equity it makes this number appear smaller but it doesn't mean value is being destroyed. The drop in total book value per share, as per your link, is due entirely too the increase in shares from 319M to 349M. I don't know where gurufocus gets these figures but that doesn't sound right to me. Bloomberg is still reporting 319M as is Google finance (converting 4 ADRS per share). Where does gurufocus get this 10% dilution from? Also, BV is just the MOS to the downside. It's not a target price to the upside. As long as it remains significantly above the current price in this tough environment, I'm ok with decreases here and there. I'd value on earnings power as the market hardens. Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted December 12, 2014 Share Posted December 12, 2014 Just looked elsewhere on guru focus and it also reports 319M shares under the shares outstanding section. Don't know where they are getting the 349M in the tangible book value per share section. I'malways skeptical of data from sites like this for exactly these reasons - lack of internal consistency certainly calls into question the accuracy of data. Link to comment Share on other sites More sharing options...
jawn619 Posted December 12, 2014 Share Posted December 12, 2014 http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=10334598-3425-763293&type=sect&TabIndex=2&companyid=6150&ppu=%252fdefault.aspx%253fcompanyid%253d6150 If you look at their most recent 10q page 9 they have listed (1) Number of Outstanding Shares 87,186,835 *Treasury Stock 7,402,567 shares so 87,186,835 *4 is roughly the 349m and 79,784,000*4 is roughly the 319M Which number should we use when calculating the BV? Link to comment Share on other sites More sharing options...
karthikpm Posted December 12, 2014 Share Posted December 12, 2014 Another Barron's article.. http://online.barrons.com/articles/warren-buffett-thinks-posco-looks-cheap-1418174920 It's funny how other than the beginning and the end there is no mention of Buffett. He bought these shares about 7 years ago and the title mentions "he thinks they are cheap." I think Barron's just re-hashed an old article . The catalysts may be the restructuring of the Korean Chaebols . This is from Montier's recent interview "The government of Korea has been a big shareholder in the chaebols, and they are pushing them for reform now: Breaking up businesses, sell non-core assets, pay out higher dividends. So unlike in Russia, where the government is scary, in Korea the government is on your side as a shareholder. The big issue for Korea right now of course is what’s happening in Japan. The Yen weakness is really hurting Korea, the exporters are screaming for a weaker Won. At some stage it can easily be seen that the Korean government will want to weaken the Won and push their exports." Link to comment Share on other sites More sharing options...
jason Posted December 16, 2014 Share Posted December 16, 2014 Hi everyone. Came across an interest report on Posco with some comments on short term and long term outlook. http://www.zacks.com/ZER/free_report.php?free_report=free_report?ALERT=zrmodule&ADID=DEF&t=PKX&d_alert=&ticker=PKX Link to comment Share on other sites More sharing options...
jawn619 Posted December 23, 2014 Share Posted December 23, 2014 Very detailed report http://seekingalpha.com/article/2771495-posco-short-term-risks-open-up-opportunity-for-long-term-investment Link to comment Share on other sites More sharing options...
jason Posted December 24, 2014 Share Posted December 24, 2014 http://www.businessinsider.com/metals-performance-2014-2014-12 Looks like Iron Ore has crashed. Maybe more short term pain ahead. Link to comment Share on other sites More sharing options...
jawn619 Posted December 31, 2014 Share Posted December 31, 2014 Just a crude way of thinking about 2015 Revs/gross profits Assume Posco produces 40k tons of steel. They sell for an average price of $750/ton which is the current price (where did i get this number? it's the average of the current HR+CR prices. A very imprecise number but i think it should be in the ballpark.) in the latest 10q for 9 months ended, they had sales of 24 trillion krw on 32mil tons ~$750 40k*750 =30,000 Billion KRW in revenues Feedstock costs Latest 10q past 9 months 8,585,200 Iron ore+coking coal 7,382,100 Nickel+scrap Iron 3,859,300 Other ~20,000 Billion KRW Project out for full year and lets say 25,000 billion KRW for full year. Let's say posco is able to buy its raw materials for 15-20% lower for the full year 2015 because of the recent crash. (not that huge of a stretch if you look at feedstock prices below) Input costs from past quarterly report of posco and current prices italicized Iron ore $100/ton $71/ton Coal $133 /ton $110/ton Scrap Iron $389/ton ($300-$350) Nickel $17,947/ton $15,000/ton That leaves us with 30,000 billion - 20,000 billion feedstock costs = 10,000 Billion in Gross profit. Any criticism/different ways of thinking? Maybe being able to sell steel in 2015 for the same price now is unrealistic? Think selling 40k tons of steel is way too optimistic? Link to comment Share on other sites More sharing options...
jawn619 Posted December 31, 2014 Share Posted December 31, 2014 Whoops i see that steel prices have already dropped and $700 would be a more realistic number. Then say 700*40,000 = 28k in revs and 20k in feedstock costs 8k gross profit. Link to comment Share on other sites More sharing options...
Guest notorious546 Posted January 5, 2015 Share Posted January 5, 2015 Still, 2014 bellwether hot-rolled coil prices declined from as high as $700 a ton in May to around $600 a ton now due to cheaper imports and rising inventories of both foreign and domestic material, despite steady, if lackluster, demand. If the seasonal pickup in demand does not occur in the first quarter, or is muted, HRC prices could fall below $600/ton, which has become a psychological floor for the industry, according to several market players. On the cost side, global iron ore prices have fallen nearly 50% and are expected to stay relatively flat. Shredded scrap prices in the US market fell 26% since the start of 2014, but have seen a recent uptick. Platts this week reported that East Coast scrap export prices to Turkey rose by $20/mt in December and US dealers have sold mid-month scrap to domestic mills as high as $30/lt above early-December prices. Nonetheless, domestic scrap is nearly $100/lt cheaper than at this time last year. http://blogs.platts.com/2015/01/02/steel-outlook-2015/ Link to comment Share on other sites More sharing options...
jawn619 Posted January 5, 2015 Share Posted January 5, 2015 Still, 2014 bellwether hot-rolled coil prices declined from as high as $700 a ton in May to around $600 a ton now due to cheaper imports and rising inventories of both foreign and domestic material, despite steady, if lackluster, demand. If the seasonal pickup in demand does not occur in the first quarter, or is muted, HRC prices could fall below $600/ton, which has become a psychological floor for the industry, according to several market players. On the cost side, global iron ore prices have fallen nearly 50% and are expected to stay relatively flat. Shredded scrap prices in the US market fell 26% since the start of 2014, but have seen a recent uptick. Platts this week reported that East Coast scrap export prices to Turkey rose by $20/mt in December and US dealers have sold mid-month scrap to domestic mills as high as $30/lt above early-December prices. Nonetheless, domestic scrap is nearly $100/lt cheaper than at this time last year. http://blogs.platts.com/2015/01/02/steel-outlook-2015/ Those steel prices are might not be relevant because they're U.S. prices. Posco does about 50% of sales in korea and 50% of sales in China. http://steelbenchmarker.com/files/history.pdf Might be a better resource Link to comment Share on other sites More sharing options...
MrB Posted January 6, 2015 Share Posted January 6, 2015 http://articles.economictimes.indiatimes.com/2013-06-02/news/39675386_1_iron-ore-posco-india-odisha Decent article on the Posco saga in India. It begins in 1990 !! Exactly why I don't think it is a bankable part of the investment thesis. Link to comment Share on other sites More sharing options...
Kiltacular Posted January 6, 2015 Share Posted January 6, 2015 http://articles.economictimes.indiatimes.com/2013-06-02/news/39675386_1_iron-ore-posco-india-odisha Decent article on the Posco saga in India. It begins in 1990 !! Exactly why I don't think it is a bankable part of the investment thesis. Agreed Link to comment Share on other sites More sharing options...
alwaysinvert Posted January 6, 2015 Share Posted January 6, 2015 Yes, I don't think it's serious to include that as any kind of upside. Perhaps you could be charitable and not consider it an endless money hole even though it is in development hell. Link to comment Share on other sites More sharing options...
jawn619 Posted January 8, 2015 Share Posted January 8, 2015 speaking of the endless moneyhole http://economictimes.indiatimes.com/industry/indl-goods/svs/metals-mining/mmdr-act-amendments-create-fresh-hurdle-for-posco-project/articleshow/45801175.cms Link to comment Share on other sites More sharing options...
zenith Posted January 16, 2015 Share Posted January 16, 2015 http://www.bloomberg.com/news/2015-01-15/posco-in-talks-to-sell-engineering-stake-to-saudi-fund.html Link to comment Share on other sites More sharing options...
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