[Click eStock] "Hyundai Steel, Expectations for Increased Shareholder Returns Amid Debt Reduction"

[Asia Economy Reporter Song Hwajeong] Yuanta Securities maintained a 'Buy' rating and a target price of 72,000 KRW for Hyundai Steel on the 5th, citing improved earnings leading to a reduction in borrowings, which in turn raises expectations for an expanded shareholder return policy.

Yuanta Securities estimated Hyundai Steel's consolidated operating profit for Q4 last year at 841 billion KRW, representing a 1,419% increase compared to the same period the previous year. Researcher Lee Hyunsoo of Yuanta Securities stated, "In December last year, the price of automotive steel sheets supplied domestically to Hyundai Motor and Kia was raised by 120,000 KRW per ton, and this increase was retroactively applied from the August supply." He explained, "Thanks to the price hike of automotive steel sheets, despite increased cost burdens for sheet products, the spread is expected to widen compared to the previous quarter." For long products, although sales prices are expected to rise, the spread is likely to narrow compared to the previous quarter due to a relatively significant increase in raw material input costs such as steel scrap. Lee analyzed, "Sales volume exceeded 5 million tons, and fixed costs per unit decreased compared to the previous quarter, positively impacting operating profit. However, the rise in labor costs due to the establishment of three subsidiaries is estimated to have weighed on operating profit."

Automotive steel sheets are expected to play a role in protecting profitability amid a weak raw material price environment. Last year, the price of automotive steel sheets supplied domestically to affiliates was raised by 50,000 KRW per ton in the first half and 120,000 KRW in the second half, totaling a 170,000 KRW annual increase. Lee said, "Compared to the price increases of other sheet products such as hot-rolled and thick plates last year, this is relatively small, but in a future weak raw material price phase, it will rather help defend profitability." He added, "For hot-rolled and thick plates, price reductions due to weak raw material prices are inevitable, but automotive steel sheet prices have low price elasticity relative to raw material price movements, so the possibility of price cuts at current or forecasted raw material price levels by Hyundai Steel is low." Additionally, if the production volume of finished car manufacturers increases compared to the previous year, Hyundai Steel's automotive steel sheet sales volume is expected to rise for both affiliate and non-affiliate customers.

A reduction in borrowings is expected to lower financial costs and expand shareholder return policies. Hyundai Steel had difficulty reducing borrowings over recent years due to declining operating profits, but last year, with a significant increase in operating profit, borrowings also decreased. Lee said, "As of Q3 last year, total borrowings on a separate basis were 10.9 trillion KRW, and net borrowings were 8.7 trillion KRW, which is still high, but further reductions in borrowings seem possible based on improved performance, which will reduce financial cost burdens." He analyzed, "Once borrowings decrease to an appropriate level, an expansion of shareholder return policies can also be considered."