4Q21 Preview: To Post Record-high OP of W854.7bn
The author is an analyst of NH Investment & Securities. He can be reached at will.byun@nhqv.com. -- Ed.
For 4Q21, Hyundai Steel is expected to post record-high consolidated quarterly OP, backed by price increase for automobile and shipbuilding steel plate. While a steel business rebound might not be imminent, the firm’s valuation attractiveness based on robust earnings should strengthen in a market environment showing preference for value stocks.
Valuation attractiveness to strengthen on preference for value stocks
We maintain a Buy rating and TP of W68,000 for Hyundai Steel. Our TP equates to a 2022F P/E of 8.8x and P/B of 0.48x (ROE of 5.6%). Moving ahead, Hyundai Steel’s share price should benefit from: 1) China’s steel production cuts, which are likely to continue throughout this year; 2) expectations for healthy OP; and 3) the rising attractiveness of value stocks amid tightening fiscal policy.
For the time being, steel prices are to fluctuate in a relatively weak zone, as raw material prices are stabilizing and demand rebound is unlikely to prove significant. However, the firm’s consolidated 2022 OP should arrive strong at W2.0tn (-21.5% y-y). Currently trading at a P/E of 5.8x and P/B of 0.31x, Hyundai Steel’s share price is likely to climb in a stock market environment showing a strengthening preference for value stocks.
4Q21 preview: To post record-high consolidated OP of W854.7bn
We expect Hyundai Steel to log consolidated 4Q21 sales of W7.6tn (+47.7% y-y, +20.5% q-q), OP of W854.7bn (+1,443.0% y-y, +3.4% q-q), and NP (excluding minority interests) of W531.7bn (TTP y-y, -9.1% q-q), with sales and OP beating consensus by 5.9% and 0.3%, respectively, but NP missing the mark by 4.4%.
Both sheet and long product ASPs and sales volumes likely widened q-q in 4Q21, helping with earnings improvement. In 2H21, the ASP of automobile steel plate likely climbed by more than W100,000/ton, and that of shipbuilding steel plate by approximately W300,000/ton. In line with the rise in steel scrap price, the ASP of rebar and shaped steel sections also upped by around W40,000/ton.
Following expected record-high quarterly OP in 4Q21, OP will likely slide to W622bn in 1Q22. However, a higher level of earnings relative to past levels is anticipated to sustain, and Hyundai Steel’s attractiveness as a value stock is expected to enter the spotlight.