[Click eStock] "Hyundai Steel, China's Economic Stimulus Effect Still Below Expectations"…Target Price ↓

[Asia Economy Reporter Lee Jung-yoon] Daishin Securities downgraded the target price of Hyundai Steel on the 4th from the previous 55,000 KRW to 53,000 KRW, citing intensified declines in steel raw material and product prices and the fact that China's economic stimulus effects have so far been below expectations. However, the buy rating was maintained.

On a consolidated basis, Hyundai Steel's sales for the second quarter of this year increased by 31.3% year-on-year to 7.381 trillion KRW, and operating profit rose by 50.8% to 822.1 billion KRW. These figures were in line with consensus estimates, with the operating margin rising by 1.4 percentage points to 11.1%.

Regarding blast furnaces, shipment delays caused by the Cargo Solidarity Union strike in June and a sharp drop in raw material prices led to a cautious stance, resulting in sales volume falling 4.8% quarter-on-quarter to 2.85 million tons. However, price increases for actual demand sectors such as automobiles and shipbuilding led to an improvement in the spread (product price minus raw material price) by about 20,000 KRW.

For electric furnaces, the construction peak season effect did not materialize, but sales volume rose 3.5% quarter-on-quarter to 1.81 million tons. A spread improvement of about 50,000 KRW was observed. The mobility sector benefited from a boom in the North American energy pipe market. Oil prices and rig (oil drilling equipment) counts continued to rise.

However, concerns over economic slowdown have highlighted intensified declines in steel raw material and product prices, which could weigh on third-quarter earnings. Price negotiations for actual demand sectors are scheduled for the second half of the year, with automobile steel sheet prices having justification for further increases.

Additionally, China's economic stimulus effects have so far been evaluated as below expectations. Lee Tae-hwan, a researcher at Daishin Securities, explained, "Real estate market indicators worsened further even after the lifting of lockdowns. The spread of mortgage repayment refusals has expanded financial risk concerns, making liquidity supply by the Chinese government a key factor."

He added, "Due to production cuts by Chinese companies through blast furnace inspections and maintenance, the possibility of supply increases in the second half is limited, and if demand and prices rebound, the spread improvement in the fourth quarter will be significant."