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Issuer Flash: PT Krakatau Posco

Issuer Flash: PT Krakatau Posco

Report date: 2026-05-25 Event date: 2026-05-20 Event title: Q1 2026 Results

1. Flash Conclusion

Krakatau Posco’s Q1 2026 results showed a quarter-on-quarter recovery in revenue and an improvement in operating profit versus the prior-year period, but the credit read-through is still not reassuring. Revenue was USD454.0 million, operating profit was USD12.8 million, and EBITDA, on the company’s presentation basis, was USD69 million. Operating profit improved from USD4 million in Q1 2025, but declined from USD19 million in Q4 2025, while net income remained in the red with a net loss of USD17.4 million.

The core view in the latest issuer_summary is unchanged: Krakatau Posco is not an Indonesian government-guaranteed SOE credit, but rather a strategic overseas steel JV that depends on POSCO support. However, the latest disclosure reconfirms that the company’s standalone credit profile is sensitive to thin margins, heavy finance costs, working-capital swings, and the rollover of short-term borrowings. Cash at end-March 2026 fell to USD2.1 million, while short-term bank borrowings increased to USD331.6 million from USD185.0 million at end-2025. The credit view is maintained, but cash recovery from Q2 2026 onward remains a key item to verify.

2. What Was Announced

On May 20, 2026, Krakatau Posco published 1Q-2026 Financial Statements and 1Q-2026 Perfomance on its official website. According to the company materials, crude-steel production was 716 thousand tonnes, down 50 thousand tonnes from Q4 2025. The company explained that the main factors were scheduled maintenance of 92 hours for the blast furnace and 146 hours for the steelmaking process, as well as the Lebaran holiday season. By contrast, product sales volume was 733 thousand tonnes, up 62 thousand tonnes from Q4 2025.

Metric Q1 2025 Q4 2025 Q1 2026 Interpretation
Product sales volume 695 thousand tonnes 671 thousand tonnes 733 thousand tonnes Recovered QoQ
Revenue USD466 million USD408 million USD454 million Recovered QoQ; slightly lower YoY
Operating profit USD4 million USD19 million USD13 million Improved YoY; deteriorated QoQ
Operating margin 0.9% 4.6% 2.8% Profitability remains thin
Net finance costs USD27 million USD26 million USD26 million Exceeds operating profit
Net income/loss -USD23 million -USD7 million -USD17 million Losses continued
EBITDA USD60 million USD75 million USD69 million Improved YoY; deteriorated QoQ
Debt USD1,364 million USD1,276 million USD1,419 million Increased due to working-capital factors
Debt/EBITDA 5.65x 4.41x 5.14x Deteriorated QoQ on the company’s presentation basis

The balance sheet and cash flow statement highlight the thin liquidity position. At end-March 2026, total assets were USD2,630.1 million, total liabilities were USD1,901.7 million, and equity was USD728.5 million. Cash was USD2.1 million, down from USD20.6 million at end-2025. Trade receivables increased to USD149.8 million and inventories to USD467.3 million, while operating cash flow was an outflow of USD153.3 million. Financing activities generated an inflow of USD142.2 million, mainly from a net increase in short-term borrowings.

3. Credit Read-Through

First, earnings show some signs of bottoming out, but they are not yet sufficient to absorb interest costs comfortably. Q1 2026 operating profit was USD12.8 million, versus net finance costs of USD25.7 million. The key question is whether the company can return to a trajectory in which full-year 2026 operating profit exceeds the USD66.2 million recorded in 2025.

Second, working capital and short-term liquidity are the main areas to verify. The company cited an increase in raw-material inventories related to spray-gun maintenance, as well as delayed receivables collection due to the Lebaran holiday and bank closures, and explained that inventories are expected to decline during the year. This explanation is reasonable, but the combination of USD2.1 million in cash, USD331.6 million in short-term bank borrowings, and a USD153.3 million operating cash outflow is not immaterial. The continuation of bank lines, transaction terms with related parties, and expectations of POSCO support remain central to the liquidity assessment.

Third, the importance of POSCO support has, if anything, increased. The Q1 materials do not provide additional disclosure on the legal substance of the support agreement, but based on the standalone financial statements, Krakatau Posco’s investment-grade characteristics are difficult to explain by standalone earnings alone. These results reinforce the view highlighted in the latest summary: this is a crossover steel credit with POSCO support. It is too early to annualise Q1 weakness mechanically, but if inventories, receivables, and short-term borrowings do not reverse from Q2 onward, market views are likely to become more cautious ahead of the refinancing of the USD300 million bond due in 2027.

4. What To Watch Next

The highest-priority item is a reversal in working capital in Q2 2026. The key checks are whether cash recovers from USD2.1 million, whether receivables and inventories decline, and whether short-term bank borrowings of USD331.6 million are reduced. The next point is whether operating profit moves closer to, or exceeds, net finance costs. From the second half of 2026, refinancing preparations for the USD300 million bond maturing in June 2027 will become the focus, including bank borrowings, the bond market, POSCO support, and internal funding.

Verification of the support agreement and the Offering Circular remains unresolved. The Q1 materials are useful for understanding performance and financial structure, but they do not allow confirmation of bondholders’ direct claim rights, termination conditions, collateral restrictions, additional debt limitations, change of control, cross default, or similar provisions. Whether Krakatau Posco bonds can be treated close to POSCO parent bonds, or whether investors should demand a wider spread as standalone steel risk with support expectations, depends on confirmation of these contractual terms.

5. Sources

Unverified / Pending