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Jun 10, 2023

Comprehensive global force in specialized steel pipes

The author is an analyst for NH Investment & Securities. He can be reached at [email protected] -- Ed. Specialized steel pipe manufacturer Nexteel boasts sound earnings, with its raw materials

The author is an analyst for NH Investment & Securities. He can be reached at [email protected] -- Ed.

Specialized steel pipe manufacturer Nexteel boasts sound earnings, with its raw materials cost-ASP spread widening amid strong US demand for energy pipes. Utilizing funds to be raised through its upcoming public offering slated for Aug 21, the company is planning capacity expansion in a bid to diversify its product portfolio and sales channels.

Favorable energy pipe business environment

Specialized steel pipe manufacturer Nexteel’s product offerings include oil, gas, and general pipes. With the US ramping up its oil and gas production to cope with the disruption of the Russian oil and gas supply chain, demand for energy pipes is on the rise. As it holds an export quota, Nexteel maintains a stable share of the US market. As of 2022, its portions out of Korean-made pipe exports to the US stood at 24% for oil pipes, 18% for gas pipes, and 19% for general pipes.

To diversify portfolio and sales channels via capacity expansion

Due to an ongoing supply imbalance for energy pipes in the US, the spread between Nexteel’s raw materials costs and ASP has been expanding, in turn leading to higher earnings. The company’s export ASP upped from W950,000/ton in 2020 to W3,028,000/ton in 1Q23, whereas the domestic price for hot-rolled coil products has kept stable at around W1,000,000/ton over the same timeframe.

Out of the estimated funds of W40.99bn to be raised via its upcoming public offering, Nexteel is earmarking W24.49bn for investment in the construction of large-diameter steel pipe manufacturing facilities (spiral and roll bender equipment) in Daegu, with the aim of expanding annual production capacity to 1,450,000 tons by 2025. Through product portfolio diversification, the firm is to enter the offshore wind power arena. And, seeking to ensure long-term sales stability, Nexteel plans to diversify its sales channels beyond the American and domestic markets to include non-American regions.

Based on its IPO price, the company’s shares trade at a 2023E P/E of 2.0x~2.2x. The number of shares to be offered is 7mn (3.65mn new shares; 3.35mn existing shares), with the post-IPO free-float ratio of 26.4%.