[Click eStock] "Hyundai Steel, Clear Earnings Outlook for the Second Half"

[Asia Economy Reporter Jihwan Park] Meritz Securities maintained its investment opinion of 'Buy' and a target price of 67,000 KRW for Hyundai Steel, stating that the earnings outlook remains bright in the second half of the year.

Moon Kyung-won, a researcher at Meritz Securities, stated, "The consolidated operating profit for the third quarter is expected to reach 755.5 billion KRW, a 2163% increase compared to the previous year, surpassing the market expectation of 629.3 billion KRW." The rise in distribution prices due to a decrease in Chinese imports, along with the completion of price negotiations for thick plates with the three major shipbuilders, significantly improved the spread for plate products by 71,000 KRW compared to the previous quarter. Additionally, the spread for long products is estimated to have improved by 64,000 KRW. This is attributed to the recent flexible application of the rebar price notification system, which has allowed the rising price of steel scrap to be fully reflected in product prices. He explained, "Although it is unfortunate that some one-time labor costs will be recognized in the third quarter due to the direct hiring of about 7,000 workers from partner companies as regular employees, the scale is not large enough to hinder the spread improvement."

In the fourth quarter, there is a high possibility of profit growth supported by further spread improvements in long products. Considering the recent sharp decline in iron ore prices, the rapid rise in steel scrap prices is also likely to slow down, and automotive steel sheets for Hyundai Motor Company and Kia Motors are expected to see price increases. For export volumes, which account for about 30% of Hyundai Motor Company and Kia Motors' shipments, price increases of over 50,000 KRW are anticipated, suggesting that additional negotiations for domestic volumes may also be possible.

Researcher Moon assessed, "The 12-month forward price-to-book ratio (PBR), which once rose to 0.45 times, has fallen to 0.38 times, but given the expected earnings improvement by the end of the year, concerns about entering a downward cycle are premature."