[Click eStock] Hyundai Steel Records Differentiated Performance... Positive Buy

[Asia Economy Reporter Lee Seon-ae] Shinhan Financial Investment announced on the 17th that it maintains a Buy rating and a target price of 65,000 KRW for Hyundai Steel. The target price is calculated by applying a price-to-book ratio (PBR) of 0.45 times to the 12-month forward book value per share (BPS).

Park Kwang-rae, a researcher at Shinhan Financial Investment, stated, "Although a decline in earnings compared to the previous year is inevitable in 2022 following strong performance in 2021, the announcement of additional economic stimulus measures in China and the easing of COVID-19 related risks are expected to lead to spread improvements starting in the second half of the year. Therefore, it is necessary to proactively increase investment weight in the steel industry. In particular, if semiconductor supply for automobiles and the global logistics system normalize within the year, improvements in automakers' earnings and stock price increases are expected. Historical data confirms that stock performance was strong during periods of improvement in the automobile industry, so we maintain a positive view on investing in Hyundai Steel," he explained.

On a separate basis for the fourth quarter, sales are expected to be 5.86 trillion KRW (+13.9% QoQ), and operating profit 837.4 billion KRW (+7.3%), in line with market expectations (sales 5.9 trillion KRW, operating profit 810.2 billion KRW). On a consolidated basis, sales are expected to be 6.61 trillion KRW (+12.8%) and operating profit 871.1 billion KRW (+5.4%), similarly meeting expectations (sales 6.64 trillion KRW, operating profit 852.2 billion KRW).

Initially, a decrease in operating profit was expected in the fourth quarter compared to the previous quarter due to spread contraction caused by stagnant average selling prices (ASP) and rising input costs, as well as slower-than-expected recovery in automotive steel sheet sales. However, the effect of price increases for automotive steel sheets by Hyundai Motor and Kia (120,000 KRW per ton), especially the retroactive application of the price hikes from August to September in the fourth quarter, is expected to result in an increase in operating profit compared to the previous quarter.

In the first quarter of 2022, sales volume may slightly increase compared to the fourth quarter, but with input costs remaining high and ASP declining, separate operating profit is expected to decrease by 23.6% from the fourth quarter to 639 billion KRW. The decline in operating profit compared to the previous quarter is expected to continue until the third quarter, with a rebound anticipated from the fourth quarter due to spread improvements.