Analysts' View on Hyundai Steel: "Upward Trend Curve Remains Unchanged"

[Asia Economy Reporter Lee Seon-ae] The securities industry has consecutively raised or maintained the target price for Hyundai Steel, presenting investment strategies that reflect this adjustment. This is based on the judgment that there is sufficient potential for further stock price increases as a 'performance turnaround' is expected this year.

According to the securities industry on the 31st, Meritz Securities recently raised the target price for Hyundai Steel by 6% to 53,000 KRW, considering the structural restructuring effects that will fully occur from 2021 and the favorable conditions in the upstream industries, believing that the valuation could rise to an average level.

Hyundai Steel's operating profit in the fourth quarter of last year turned positive at 55.4 billion KRW but fell significantly short of the consensus (101.4 billion KRW). The main cause was the one-time expenses of about 40 billion KRW, including provisions due to delayed wage negotiations. Additionally, about 190 billion KRW in non-operating expenses were reflected, including asset impairment of some suspended facilities and fines for collusion in scrap metal purchases, which severely worsened net profit. However, although performance improvement is difficult in the first quarter of this year due to the full reflection of the sharply rising scrap metal prices, from the second quarter onward, it is expected to enter a stepped profit growth cycle along with rising rebar prices.

Empirically, Hyundai Steel's trend within the industry has been determined by the stock price trend of Hyundai Kia Motors. The sharp stock price rise until mid-January can also be understood in this context. In fact, the improvement in Hyundai Kia Motors' performance is a factor that raises the possibility of price increases for automotive steel plates higher than in the first half of last year. The increase in demand for hydrogen separation membranes due to the opening of the hydrogen car market is also positive.

Moon Kyung-won, a researcher at Meritz Securities, explained, "Although the relatively steep recent stock price rise within the business is somewhat burdensome, considering the favorable conditions in the upstream industries this year, we slightly raised the appropriate multiple from 0.40x to 0.43x (average since 2015), resulting in an appropriate target price of 53,000 KRW, and maintain a buy recommendation."

DB Financial Investment adjusted Hyundai Steel's target price upward by 32.4% to 49,000 KRW, stating that the direction is upward. Kim Hong-gyun, a researcher at DB Financial Investment, analyzed, "This year, sales of high value-added products such as global automotive steel plates and high-strength rebars are expected to expand, and the proportion of ultra-high-strength steel sales such as hot stamping for electric vehicles will also increase," adding, "In particular, stable volume secured through the Hyundai Motor Group and direct benefits from the stabilization of the automotive industry will be received."

Samsung Securities maintained Hyundai Steel's target price at 50,000 KRW, citing "the full-scale recovery of performance based on rising steel prices."

NH Investment & Securities also stated that it maintains the recently raised target price of 55,000 KRW for Hyundai Steel, expecting "strong profit recovery from the first quarter." Researcher Byun Jong-man of NH Investment & Securities explained, "Domestic automotive steel plate prices are expected to increase by at least 50,000 KRW in the first half of this year, and cold-rolled steel sales are also expected to increase due to the recovery of demand in upstream industries such as automobiles," adding, "Price increases for automotive steel plates and profitability improvements in long products during the first half of 2021 are expected to drive profit growth."

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