[Click eStock] Hyundai Steel to Increase Operating Profit This Year for the First Time in 7 Years

[Asia Economy Reporter Lee Seon-ae] Yuanta Securities announced on the 24th that it has raised its operating profit estimate for Hyundai Steel while maintaining a 'Buy' investment rating and a target price of 53,000 KRW.

Researcher Lee Hyun-soo of Yuanta Securities raised Hyundai Steel's consolidated operating profit estimate for this year by about 38%, from the previous 802 billion KRW to 1.105 trillion KRW. As of the 23rd, the 2021 consolidated operating profit consensus was 720.4 billion KRW, and the 2018 consolidated operating profit was 1.0261 trillion KRW. After recording an operating profit of 1.491 trillion KRW in 2014, operating profit declined for six consecutive years until 2020. During this period, although there were fluctuations in sheet and long products individually, overall profitability deteriorated. It is expected that 2021 will be the first year in seven years where operating profit increases compared to the previous year. Since the consolidated operating profit in 2020 was only 73 billion KRW, the increase is natural, but the magnitude of the increase is expected to be greater than anticipated.

For sheet products, the spread is expected to widen, and losses in the special steel segment are expected to shrink. Automotive steel prices are anticipated to rise for the first time in four years, and shipbuilding-oriented heavy plates are also expected to see price increases and sales volume expansion due to price hikes originating from China and a decrease in imports. Operating profit for long products, represented by rebar and H-beams, is expected to increase in 2021 compared to the previous year, but the increase is not expected to be significant. Compared to 2019, the long products market in 2020 responded well to rising raw material (steel scrap) prices by increasing product prices, showing strong performance. Although this trend is expected to continue this year, the improvement was significant last year, so the increase this year is expected to be relatively smaller. On the other hand, significant performance improvements are expected in sheet products and overseas subsidiaries. As mentioned earlier, sheet products are expected to see spread expansion due to the favorable steel industry conditions in China. Among overseas subsidiaries, Chinese corporations confirmed a low point in operating profit in 2019 and have been improving since 2020. The withdrawal from low-profit businesses such as electric furnace hot-rolled and color steel plates is also expected to positively impact performance improvement starting this year.

Researcher Lee explained, "The estimated return on equity (ROE) is raised from 2.1% to 3.5%, but the appropriate price-to-book ratio (PBR) is maintained at 0.40x," adding, "We consider a PBR of 0.40x as the minimum value to be accepted in a phase of industry and performance improvement, and for a higher valuation, ROE must also show additional improvement."

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