Share Price to Rise on Performance Improvements
The author is an analyst of NH Investment & Securities. He can be reached at will.byun@nhqv.com. -- Ed.
Hyundai Steel’s consolidated 4Q20 OP likely fell short of consensus, impacted by 2020 labor cost expansion and asset sale-related losses. In 2021, however, OP is projected to recover to W605.3bn on the back of increased automobile steel plate ASPs and strengthening sales of CR plate.
Share price to rise on low P/B and performance improvements
Adhering to a Buy rating, we raise our TP on Hyundai Steel (004020.KS) by 17% from W47,000 to W55,000. Chances are in play for a rise in the domestic price of automobile steel plate in 1H21, driven by soaring iron ore prices and international steel price expansion. Sales of CR plate are expected to pick up as well. Our TP equates to a 2021F P/B of 0.44x, the average level for Hyundai Steel seen during the steel industry upcycle of 2016~2018.
We expect Hyundai Steel’s consolidated 2021 sales to recover to the 2019 level of W205.8tn (+13.3% y-y), with OP likely arriving at W605.3bn (+476.6% y-y) and NP (excluding minority interests) at W114.0bn (TTP y-y). Aided by global economic recovery, international steel prices continue to climb. We expect the price of automobile steel plate, which has remained frozen since 2Q17, to ratchet up by over W50,000/ton in 1H21. Long product ASPs should continue rising as well, helping to bring about overall earnings growth.
4Q20 preview: Earnings to meet consensus
We estimate Hyundai Steel’s consolidated 4Q20 sales at W4,917bn (+2.0% y-y, +10.2% q-q), OP at W87.3bn (TTP y-y, +161.7% q-q), and net loss at W31.6bn (RR y-y, RR q-q), with OP falling 8.9% short of the market prediction. While profitability likely improved on the back of product price hikes, 4Q20 net income is to reflect the estimated labor cost increase of W20bn stemming from delayed 2020 wage negotiations.
Meanwhile, on the non-operating side, 4Q20 pre-tax and net losses were likely incurred due to losses of W90bn related to the disposal of HR equipment and W30bn from asset impairment.