Trading company:Commodity rally adding momentum
Domestic trading firms are enjoying share-price momentum as they booked sizableimpairment losses in 4Q15and commodity prices are rallying. Downside forearnings at LG International and Posco Daewoo seems limited if commodity pricesstabilize near current levels. SK Networks, however, has an unclear outlook, givenuncertainties over its DFS business.
We raise our target on Posco Daewoo to KRW25,000to reflect the firm discoveringa second gas field in Myanmar and rising oil prices. We hike our target price for LGInternational to KRW42,000expecting: 1) commodity price hikes to boost earningsover the medium to long term; 2) a likely-to-launch USD4b project in Turkmenistanto increase the firm’s project organizing profits; and 3) earnings at Pantos Logisticsto improve. For SK Networks, our investment decision should remain unclear untilthe government at end-April decides whether to issue additional DFS licenses.