[Click eStock] "Hyundai Steel, Excessively Low Valuation... Expected to Recover in the Second Half"

[Asia Economy Reporter Myunghwan Lee] Yuanta Securities announced on the 5th that it maintains a buy rating on Hyundai Steel but lowers the target price from the previous 67,000 KRW to 58,000 KRW. The reasons cited are the sales price negotiations in the second half of the year and the low valuation of the KOSPI. However, it pointed out that Hyundai Steel's valuation is excessively low even considering the industry conditions.

Yuanta Securities estimates Hyundai Steel's consolidated operating profit for the second quarter of this year to be 817 billion KRW, a 50% increase compared to the same period last year. The operating profit on a separate basis is forecasted at 757 billion KRW.

Despite some shipment impacts due to the Cargo Solidarity strike and demand slowdown caused by the June rainy season, Yuanta Securities estimates that product sales volume exceeded 5 million tons due to the seasonal peak in April and May. The average selling price (ASP) of plate products is expected to have risen by about 100,000 KRW per ton compared to the previous quarter, reflecting price increases for domestic supply of cold-rolled steel sheets to affiliates in the first half and price hikes for shipbuilding-related thick plates in the second quarter. However, it is judged that the improvement will not be significant as major raw material input costs are also estimated to have risen sharply compared to the previous quarter.

For long products, it is estimated that the price gap widened by applying the increased scrap steel prices from the previous quarter to the selling price. Both plate products and long products are expected to have increased sales volume compared to the previous quarter, leading to a 17% increase in operating profit.

Yuanta Securities analyzes that it will be difficult for Hyundai Steel to raise sales prices in the second half of this year. Earlier, Hyundai Steel raised sales prices for automotive and shipbuilding products in the first half of this year. However, considering the prices of major raw materials such as iron ore and coking coal, it is judged that additional price increases in the second half are unlikely. The import price of Chinese iron ore has weakened since April, falling to the 110 USD per ton level by the end of last month, and Australian coking coal export prices have rapidly declined since mid-March, recording the low 300 USD per ton range at the end of June.

Yuanta Securities forecasts that as Chinese steelmakers are expected to cut production in the second half, demand for iron ore and coking coal will decrease, negatively impacting prices. However, even if sales prices for actual demand decline in the second half, the seasonal off-season followed by a rebound in the Chinese steel market is expected, so the possibility of profit erosion is considered low.

Researcher Hyunsoo Lee of Yuanta Securities stated, "The domestic steel industry has remained at a low valuation as the stock price has not reflected the improved business conditions and performance since 2021," adding, "Due to the unexpectedly weak Chinese steel industry since June, stock prices have sharply dropped in the short term, and overall, June to August is expected to be the bottom of the Chinese steel industry." He further predicted, "As the second half progresses, valuation recovery due to stock price increases is expected."