We are assuming coverage of POSCO with a Neutral rating and a price target of W156,000, based on our peak-trough median P/BV multiple of 0.9x set against our 2004E BPS of W182,929 • EPS growth momentum should last through the remainder of 2003; we forecast 2003 EPS to be W22,099, and 2004 EPS to decline by 38% to W13,657. • IP growth and Won/Yen outlook are the main drivers for domestic HRC prices. We expect average HRC price to fall by 5% in Won terms while increasing by 2% in Dollar terms • We forecast soft landing pricing scenarios in the key export markets of Japan and China in 2004, despite expected growth in demand there. We expect the average HRC export price to fall 7%. • Medium-to-long-term steel consumption growth outlook in China remains bright from a regional perspective, but the pace of medium-term capacity growth is a key question mark. We are assuming coverage of POSCO with a Neutral rating and a price target of W156,000, based on our peak-trough median P/BV multiple of 0.9x set against our 2004E BVPS of W182,929. POSCO should be seen as a cyclical stock within its traditional trading dynamics, in our view. However, we also note that its world-class cost efficiency has led to more than a healthy level of cash build-up that is threatening to erode its medium-long term ROE profile. Accordingly, we believe the stock’s YTD P/BV valuation range of 0.5-0.9x, given our peak year assumptions for 2003E, reflects this concern in the market, given the previous peak year trading range of 0.5-1.3x. Accordingly our current price target is set at POSCO’s historical peak-trough median P/BV of 0.9x against our 2004E BPS of W182,929. Domestic pricing decisions are made on the basis of outlooks for industrial production growth and the Won/Yen exchange rate. Given the new macro forecasts by JP Morgan’s economics team, we believe there is likely to be a divergence in 2004E of average domestic HRC price in won and dollar terms. We are forecasting a 5% decline in the average domestic HRC price in Won terms, but a 2% rise of average HRC price in dollar terms in 2004E. Export pricing is influenced by trends in key export markets, which happen to be Japan and China for POSCO. A weighted average outlook for price trends in those markets point to a soft-landing scenario given our current macro-economic outlook there, resulting in an 7% Y/Y decline in average HRC price in 2004E, though demand itself should remain in positive territory in both economies. Given our macro outlook, we expect the current year’s earnings momentum to last through the remainder of the current calendar year, supported by a stronger currency outlook. As POSCO is a net importer, it benefits the bottom line by a strong currency. However, given our pricing outlook in both domestic and export markets for 2004E, we are expecting a downward inflection in reported earnings.