[Click eStock] "Hyundai Steel, Q4 Sales Recovery... Possible Price Increase in Q1 Next Year"

[Asia Economy Reporter Oh Ju-yeon] Hana Financial Investment analyzed that Hyundai Steel's sales volume of steel products increased in the fourth quarter of this year due to the recovery of sheet metal sales centered on automotive steel sheets despite the spread of the novel coronavirus infection (COVID-19). They maintained a 'buy' investment rating and raised the target price from 38,000 KRW to 50,000 KRW, stating that profitability is expected to improve with the possibility of price increases in the first quarter of next year.

According to Hana Financial Investment on the 29th, Hyundai Steel's separate sales in the fourth quarter of this year are expected to increase by 1.4% year-on-year to 4.2 trillion KRW, and operating profit is expected to turn positive to 80.3 billion KRW.

This is because the sales volume of steel products is expected to reach 5.02 million tons, a 3.5% increase from the previous quarter, due to the recovery of sheet metal sales centered on automotive steel sheets. In addition, aggressive price increases to pass on the rise in iron ore prices are expected to raise the average selling price (ASP) of sheet metal by 30,000 KRW per ton, expanding the sheet metal spread by 10,000 KRW per ton.

Researcher Park Seong-bong of Hana Financial Investment said, "In the case of long products, an aggressive price increase is also expected to expand the spread by 5,000 KRW per ton," and added, "As a result, the fourth-quarter operating profit is expected to almost meet the market consensus of 85.7 billion KRW." However, he noted that if one-time provisions related to wage and collective bargaining (wage negotiations) are reflected, there is a possibility that the consensus could be missed.

Researcher Park also analyzed that aggressive price increase attempts are expected in the first quarter of next year.

China's steel distribution prices rebounded from the low point in April and switched to a sharp rise in the fourth quarter, with prices as of the end of December approaching the highest level in the past 10 years. Accordingly, major Chinese steelmakers, which announced aggressive price increases from the fourth quarter, additionally announced large price increases for most sheet metals starting in January. Hyundai Steel also announced large price increases starting in January, mainly for hot-rolled and general cold-rolled products for distribution.

Researcher Park said, "An increase of about 26,000 KRW per ton in the ASP of sheet metals is expected in the first quarter," adding, "Although the recent rise in steel scrap prices is burdensome for long products, considering the favorable domestic supply and demand, the spread level of the fourth quarter is expected to be maintained."

He continued, "From the fourth quarter, the recovery of automotive steel sheet sales and the improvement in profitability through additional price increases in the first quarter of next year are expected," and explained, "The current price-to-book ratio (PBR) is only 0.3 times, so valuation pressure is also limited."

This content was produced with the assistance of AI translation services.