Selling Prices to Continue to Absorb Rising Input Costs
The author is an analyst of KB Securities. She can be reached at hyejung.jung@kbfg.com. -- Ed.
1Q22P consolidated OP of KRW697.4bn (+129.5% YoY) beats market consensus
— Hyundai Steel posted 1Q22P consolidated revenue of KRW7.0tn (+41.7% YoY, +8.4% QoQ), OP of KRW697.4bn (+129.5% YoY, -9.7% QoQ; 10.0% OPM) and NP (attributable to controlling interests) of KRW476.1bn (+126.9% YoY, +43.6% QoQ). OP beat our estimate and the market consensus by 20.6% and 16.5%, respectively.
— On a standalone basis, Hyundai Steel turned in revenue of KRW6.1tn (+43.1% YoY, +6.3% QoQ), OP of KRW611.7bn (+106.2% YoY, -17.2% QoQ; 10.1% OPM) and NP of KRW436.7bn (+88.2% YoY, +41.8% QoQ).
Wide product margin spreads, favorable U.S. market conditions
— In terms of OP improvement (YoY), consolidated overseas subsidiaries enjoyed strong performance thanks to wide product margin spreads and favorable U.S. market conditions allowing for product price increases.
— 1Q22 ASP came in at KRW1.226mn/tonne (+42.1% YoY). Price increases for HR/heavy plate/steel pipe contributed to a 40.8% YoY rise in ASP for blast furnace products/43.4% YoY rise in ASP for electronic furnace products. In particular, steel pipe ASP rose 77.8% YoY (+4.2% QoQ), with the Russia-Ukraine war tightening supply/demand for U.S. oil well casing.
— COGS per unit climbed 38.8% YoY to KRW1.054mn/tonne. 4Q21 prices for iron ore (USD370.70/tonne; +237.5% YoY) and coking coal (USD109.70/tonne; -14.0% YoY) likely remained high in 1Q22.
— Product spread is estimated to have expanded 65.9% to KRW172,000/tonne.
— Earnings at consolidated subsidiaries surged. The favorable market for U.S. oil well casing and efficient operations at the Kia Motors plant in India bolstered revenue and OP for overseas SSC.
Selling prices should continue to absorb rising input costs
— For 2Q22, input costs should continue to rise but should be offset by selling prices supported by recovering domestic downstream demand and positive U.S. market trends. While price negotiations over steel plate for automobiles and heavy plate for shipbuilding are underway, the domestic construction industry is expected to enter strong seasonality. The strong U.S. demand for oil well casing and steel pipe should last until 2H22.