[Click e Stocks] "Hyundai Steel, Profitability Improvement Through Price Increase"

Hyundai Steel Dangjin Plant Panorama

[Asia Economy Reporter Song Hwajeong] Hana Financial Investment maintained its 'Buy' rating and target price of 78,000 KRW for Hyundai Steel on the 7th, expecting profitability improvement through price increases to continue until the fourth quarter.

Despite one-time costs, Hyundai Steel's third-quarter performance this year is expected to be strong due to the rise in Average Selling Price (ASP). Hana Financial Investment projected Hyundai Steel's third-quarter results on a separate basis at 5.8 trillion KRW in sales and 692.9 billion KRW in operating profit. These figures represent increases of 55.2% and 3689.0%, respectively, compared to the same period last year. Researcher Park Seongbong of Hana Financial Investment stated, "Despite the seasonal off-season, steel product sales volume is expected to increase by 4.3% year-on-year to 5.05 million tons due to favorable domestic demand," adding, "Overall, aggressive price hike policies have significantly expanded spreads for both plate products and long products beyond initial expectations, so third-quarter operating profit is expected to greatly exceed the market consensus of 574.8 billion KRW." Park also noted, "Some costs related to direct employment of partner company employees (estimated at 70 billion KRW) were reflected."

For long products, costs are expected to rise by 100,000 KRW per ton, while ASP is projected to surge to 165,000 KRW per ton. For plate products, reflecting an increase of 330,000 to 400,000 KRW per ton in shipbuilding heavy plate prices, ASP is expected to jump to 140,000 KRW per ton, whereas input costs are anticipated to remain at 80,000 KRW per ton.

The upward trend in ASP is expected to continue into the fourth quarter. The price of imported iron ore in China, which was around 220 USD per ton until mid-July, recently plummeted below 150 USD per ton. Nevertheless, Hyundai Steel announced a 50,000 KRW per ton increase in hot-rolled coil prices in September. With the end of the heavy rains that severely affected China this year and the start of the peak season, along with the recent surge in coking coal prices, domestic steel prices are expected to remain strong in the short term due to China's strong steel export prices. Researcher Park said, "Considering the recent agreement between Nippon Steel and Toyota to raise automotive steel sheet prices by 182 USD per ton, it is highly likely that automotive steel sheet prices for Hyundai Motor Group will also be raised by more than 100,000 KRW per ton within this year, contributing to Hyundai Steel's profitability improvement in the fourth quarter."

Valuation pressure is also limited. Researcher Park explained, "While profitability improvement through price increases is expected to continue until the fourth quarter, the recovery of the domestic construction market is expected to benefit domestic rebar demand expansion through next year," adding, "On the other hand, the current stock price is only at a price-to-book ratio (PBR) of 0.4 times, so valuation pressure is limited."