Likely to Maintain Favorable Earnings Moving Ahead
The author is an analyst of NH Investment & Securities. He can be reached at will.byun@nhqv.com. -- Ed.
Hyundai Steel likely enjoyed ongoing favorable earnings in 2Q21 on the back of product price hikes. We expect concerns towards earnings peak-out to ease moving ahead, as its 3Q21 earnings should come in sound as well. The firm is to see share price expansion in the event of a rebound in Chinese steel prices.
Share price to rise in event of rebound in Chinese steel prices
We maintain a Buy rating and TP of W76,000 on Hyundai Steel. We hike 2021E and 2022F EPS by 42.7% and 25.0%, respectively. Despite the rise in our earnings forecasts, our TP remains unchanged considering the Chinese government’s interventions in the commodity market and the possibility of slowing momentum due to a weakening in stimulus measures. Our TP equates to a 2021E P/B of 0.6x, the top of the firm’s P/B band witnessed during the steel industry upcycle of 2016~2018.
China’s steel prices have declined as of late on the Chinese government’s interventions in the commodity market, in turn resulting in share price adjustments. Nevertheless, Hyundai Steel is to maintain favorable earnings moving ahead thanks to product price hikes. We estimate Hyundai Steel’s consolidated 2021 OP at W1.7tn (+2,274% y-y). In 1H21, product price increase drove profit recovery, and we predict that additional price expansion will be carried out in 2H21, led by automobile steel plate and shipbuilding steel plate. In the event of Chinese steel price rise driven by: 1) high iron ore prices; 2) seasonal demand; and 3) global economic recovery, Hyundai Steel’s share price should climb as well.
2Q21 preview: Consolidated OP to arrive at W520.2bn
We expect Hyundai Steel to log consolidated 2Q21 sales of W5.6tn (+36.1% y-y, +13.6% q-q), OP of W520.2bn (+3,624.7% y-y, +71.2% q-q), and NP (excluding minority interests) of W288.4bn (TTP y-y, +37.4% q-q), with sales arriving similar to consensus and OP and NP exceeding the mark by 15.3% and 6.5%, respectively.
Strong 2Q21 results are to be driven by product price rise. ASPs for flat products (eg, CR, HR, and plate) and long products (rebar and shaped steel) are estimated to have risen by W90,000/ton and W110,000/ton q-q, respectively. In 2Q21, combined sales volume is estimated to have reached 5.0mn tons, up 7.9% from 2Q20, when Covid-19 effects were in full force.