Eugene Investment & Securities Report
[Asia Economy Reporter Kwangho Lee] Eugene Investment & Securities analyzed that Hyundai Steel is reducing its export proportion to Southeast Asia, where China's influence is increasing, and is adopting a strategy to increase the proportion of the US and Europe, which are decoupling from China, thus having high exposure to benefits from deglobalization. The buy rating was maintained along with the target price of 46,000 KRW.
Analyst Yujin Lee of Eugene Investment & Securities stated, “Hyundai Steel's Q4 consolidated sales are expected to be 5.8 trillion KRW (-17% qoq, -10% yoy), and operating profit is expected to be 27.8 billion KRW (-93% qoq, -96% yoy). The slowdown in performance was largely due to reduced production caused by partial strikes within Hyundai Steel and shipment disruptions caused by the 16-day Cargo Solidarity strike from November to December.”
The analyst added, “In addition, the rise in utility costs (LNG and industrial electricity charges) and restoration costs for the Pohang plant were additionally reflected, negatively impacting performance. One-time costs will no longer be reflected in Q1, but high electricity charges are expected to continue next year as well, with the estimated consolidated operating profit for 2023 projected at 1.7 trillion KRW (-10% yoy).”
He said, “China's zero-COVID policy has been officially lifted,” and “After the lifting, confirmed cases surged rapidly, causing the manufacturing PMI to fall to the lowest level since the outbreak of COVID, and blast furnace operating rates have remained flat.” He added, “Global prices including China are rising simultaneously, but this is due to the impact of supply shocks rather than fundamental (demand) improvements. Ultimately, the direction of global demand after China's COVID recovery point will be the key to the steel industry outlook.”
He continued, “It is judged that China's influence will not be significant in Q1,” but “However, if internal demand in China does not return to normal levels after production resumes during the COVID normalization process, there is a possibility of oversupply of excess production volume.”
He also said, “In the short term, stock price fluctuations are likely to be determined by the intensity of China's infrastructure and real estate stimulus,” but “The positive long-term aspect is that trade barriers against Chinese steel products are increasing, so the relative benefits for Korean companies are expected to continue.”
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