[Click eStock] Hyundai Steel Expected to Return to Profit After Two Consecutive Quarters of Operating Losses

On June 25, NH Investment & Securities announced that Hyundai Steel is expected to turn a profit after two consecutive quarters of operating losses, raising its target price by 10% to 42,000 won. The firm also maintained its buy rating.

On the same day, Lee Jaekwang, a researcher at NH Investment & Securities, stated, "Second-quarter consolidated operating profit is expected to reach 91 billion won, turning positive compared to the previous quarter. This is due to rising plate prices, increased sales of long steel products driven by seasonal demand, and higher roll margins resulting from production cuts."

He also predicted that steel exports from China would decrease in the second half of the year as steel supply becomes restricted. Lee added, "We also expect the anti-dumping duties imposed on Chinese heavy plates since last month to have an effect. Preliminary anti-dumping rulings on Chinese and Japanese hot-rolled steel will be announced at the end of next month. Since demand for hot-rolled steel is about four times greater than that for heavy plates, the impact on steelmakers is expected to be even larger."

The electric arc furnace integrated steel mill being promoted in the United States under the leadership of Hyundai Motor Group is not expected to place a significant financial burden on Hyundai Steel. Lee analyzed, "It will serve as a long-term growth driver," and added, "Of the expected investment of $5.8 billion, Hyundai Steel is expected to shoulder about $870 million (about 1.3 trillion won) based on its 30% stake."

He continued, "Considering consolidated cash and cash equivalents of about 2.3 trillion won at the end of the first quarter, borrowings of 10 trillion won, and a debt ratio of 80%, the investment can be made without a rights offering. It should also be possible to utilize Hyundai Mobis shares, which are worth about 1.5 trillion won at market value."

Lee added, "Due to two consecutive quarters of operating losses, the current share price is trading at a price-to-book ratio (PBR) of around 0.2. If performance improves as expected, there is potential for further share price increases."