Credit Checkpoint is a section that assesses the credit rating risks of companies preparing to issue corporate bonds by examining their financial structure and cash flow. We evaluate a company’s short- and medium-term financial stability by focusing not only on the numbers in the financial statements but also on the quality and sustainability of its cash flow. We highlight key financial indicators and potential risk factors to help corporate bond investors and market participants assess a company’s creditworthiness from a more comprehensive perspective. <Editor’s Note>

[Edaily Marketin Reporter Lee Geon-eom] #SeAH Steel’s profitability indicators are taking a step backward. Despite growth in revenue and other external metrics, operating profit has actually declined, leading to concerns that the company is failing to solidify its financial foundation. In particular, concerns are mounting as uncertainty surrounding the trade environment for exports to the U.S.—the company’s core revenue source—is expected to persist for the time being.

According to the financial investment industry on the 15th, SeAH Steel will conduct a bookbuilding process for 80 billion won worth of corporate bonds on the 17th. By maturity, the company plans to issue 40 billion won each for 2-year and 3-year bonds, and is considering increasing the issuance to up to 160 billion won depending on the results of the bookbuilding.

The market is focusing on the fact that uncertainty regarding performance in exports to the U.S.—the company’s core profit driver—has not been resolved. While the company maintains a sound debt structure, some observers note that it will be difficult to guarantee a qualitative improvement in cash generation if the trend of declining profitability continues.

In fact, SeAH Steel’s consolidated operating profit for the first quarter of this year was 24.1 billion won, a 5.8% decrease from 25.6 billion won in the same period last year. This stands in stark contrast to the 18.4% rebound in revenue during the same period, from 378.9 billion won to 448.6 billion won.

The operating profit margin also fell by 1.4 percentage points (pp), from 6.8% to 5.4%. While revenue growth was driven by increased demand for energy-use steel pipes in the U.S. due to geopolitical issues and the securing of orders such as the Sinan Ui offshore wind project, rising cost pressures have hindered improvements in profitability.

Absolute cash flow levels improved. Cash flow from operating activities (OCF) for the first quarter recorded a net inflow of 21.1 billion won. This contrasts sharply with the net outflow of 59.3 billion won recorded in the same period last year. Free cash flow (FCF)—the surplus cash actually held by the company—also improved significantly to 16.9 billion won, compared to a net outflow of around 50 billion won in the same period last year. FCF refers to the actual available cash remaining after deducting capital expenditures, such as capital investments, from the cash generated through operating activities. However, some analysts argue that it is too early to conclude that this represents a structural recovery in cash generation capacity, as it is largely driven by base effects.

The problem is that the foundation of exports to the U.S., which has driven SeAH Steel’s profitability, is becoming unstable. Since the second half of last year, as measures to tighten steel import regulations—such as increased tariffs on U.S. imports—took full effect, the company’s overall profitability has declined sharply.

Domestic market conditions are also unfavorable. As the slump in the domestic steel pipe market is expected to worsen after 2025, the volatility of domestic sales—which is exposed to the construction sector downturn—is acting as an additional pressure on profitability. Analysts suggest that it will be difficult to control downward pressure on earnings unless the company secures alternative markets outside the U.S. and achieves tangible results in new business ventures such as LNG and offshore wind turbine substructures.

Seo Min-ho, Senior Analyst at Korea Ratings, stated, “High earnings uncertainty is expected to persist for the time being under the U.S.’s high tariff policy, which is a key export destination,” adding, “Considering that energy-use steel pipes for the U.S. are the products driving profitability, it is necessary to continuously monitor the company’s response to exports to the U.S.”

Meanwhile, SeAH Steel’s total consolidated debt as of the end of the first quarter stood at 443.5 billion won, a slight increase of 0.2% from 442.7 billion won at the end of the previous year. The debt-to-equity ratio stood at 23.1%, down 1.1 percentage points from 24.2% in the same period, maintaining a sound level. Financial expenses also decreased by 12.1% to 9.1 billion won, compared to 10.4 billion won in the same period last year. Korea Ratings and NICE Ratings have assigned SeAH Steel’s unsecured corporate bond credit rating as ‘A+ (Stable).’