Shares in POSCO dropped as much as 5.4% Wednesday as earnings growth is seen slowing, while chances of a takeover could be reduced after a major shipbuilder said it would buy a 1% stake.
A unit of Hyundai Heavy Industries said on Monday it plans to buy a 1% stake of POSCO, worth 402 billion won ($438 million), in addition to a separate cross-shareholding deal announced earlier this year.
Some investors also saw an 80% surge in POSCO's share prices this year to a record as excessive, with the $52.7 billion market valuation of the world's fourth-biggest steel maker exceeding second-ranked Nippon Steel, whose market value is around $48.6 billion.
"We see very stable earnings for the rest of the year and next year as well, but perhaps we won't see the great rise in earnings compared to previous years that we've seen," said Park San-kyoo, an analyst at Hyundai Securities. "POSCO's market cap exceeded Nippon Steel ... sending a signal that POSCO shares could be overvalued," he added.
The drop in POSCO shares came after the steel maker on Monday topped expectations with a 55% jump in quarterly profit, but forecast modest growth for the rest of the year.
POSCO will cut stainless steel output in the second half due to slower demand, as customers delay orders, anticipating further price drops on the back of tumbling nickel prices, a key input in the alloy.
The steel maker has been the focus of speculation that it may become a takeover target in a consolidating metals sector, with Anglo-Australian miner Rio Tinto
agreeing to buy Canada's Alcan for $38.1 billion last week.
But POSCO has been buying back shares and forging alliances with Asian firms through cross-shareholdings as a way to fend off any potential hostile bids. In April, POSCO had announced a stake swap deal with Hyundai Heavy, with the steel maker buying a 1.9% stake in the world's biggest shipbuilder for around $370 million, while selling a 1% stake in itself for a comparable
amount.