Posted on 02 Nov 2020
The author is an analyst of NH Investment & Securities. He can be reached at will.byun@nhqv.com. -- Ed.
Hyundai Steel’s 3Q20 results confirm a recovery in CR product sales. Although the pace of earnings improvement is slow, the gradual recovery should sustain. However, as the firm’s share price already reflects expectations towards a demand recovery and hydrogen-related businesses, future interest will likely focus on price hikes for automobile steel plate.
Automobile plate price hikes become trigger for share price gains
We maintain a Buy rating and raise our TP on Hyundai Steel (004020.KS) by 19.4% to W37,000. Our new TP equates to a 2021 P/B of 0.3x (ROE of 0.4%), which is the average bottom P/B level for the past five years. With sales of automobile plate (the company’s flagship product) recovering on greater production at Hyundai Motor Company (HMC) and Kia Motors, an increase in plate prices has become an important variable.
Hyundai Steel has set a vision for growth alongside Hyundai Motor Group (HMC)’s hydrogen car business. In detail, the firm plans to expand its businesses for metal separators for use in hydrogen fuel cells, and raise its hydrogen production capacity from 3,500 tons pa to 37,200 tons. Such long-term goals will likely be reflected in the stock once further details are released and profit estimates are possible. Currently trading at a 2020E P/B of only 0.24x, we expect the firm’s shares to rebound on a steel demand recovery and hydrogen business news flow.
3Q20 review: Automobile plate sales recover
On a consolidated basis, Hyundai Steel reported provisional 3Q20 sales of W4.46tn (-11.6% y-y), OP of W33.4bn (-2.1% y-y), and a net loss of W45.3bn (RR y-y). Sales and OP exceeded consensus by 2.5% and 11.3%, respectively, but the lackluster figures were unable to turn around the net deficit.
An 18.5% jump in CR sales positively impacted OP. In detail, sales of Hyundai Steel’s flagship product, automobile plate, recovered in line with rising sales at HMC and Kia. In 4Q20, CR sales should climb to W1.68mn tons (+17.5% y-y, +20.9% q-q), and likely higher automobile plate prices should drive earnings growth. Consolidated 4Q20 OP is estimated at W72.7bn (-149.2% y-y, +117.5% q-q) on the back of increased sales volume and rising product prices.
Source:Business Korea
