Posted on 14 Dec 2020
Hyundai Steel’s 3Q20 results confirm a CR product sales recovery. Going forward, the firm should enjoy ongoing earnings improvement, thanks mainly to robust automotive steel plate sales. With its share price likely to reflect both economic recovery and expectations for strengthening steel demand, we believe that investor attention will turn to Hyundai Steel’s relatively low P/B multiple and the potential for auto steel plate price hikes.
Earnings improvement and low P/B to trigger share price rebound
Adhering to a Buy rating, we raise our TP on Hyundai Steel (004020.KS) by 27.0% from W37,000 to W47,000. Backed by recovering global automobile production and rising international steel prices, the chances are improving for auto steel plate price increase. Considering that our new TP equates to a 2021F P/B of only 0.38x (the average P/B level over the past five years), we expect Hyundai Steel’s relatively low P/B multiple to be highlighted amid expected share price expansion at major domestic and foreign steel companies.
We estimate Hyundai Steel’s 2021 sales at W18.61tn (+4.6% y-y), OP at W452.8bn (+368.7% y-y), and NP (excluding minority interests) at W91.6bn (TTP y-y). A rebound in margins is anticipated at the blast furnace business, where BEP is likely being met this year. While the price of automotive steel plate has remained frozen since 2Q17, expectations are rising for 1H21 price hikes.
Look to HMG’s accelerating auto production and Hyundai Steel’s business portfolio adjustment
Hyundai Steel’s sales of automotive steel plate (its flagship product) are recovering on the back of increased production at Hyundai Motor Company (HMC) and Kia Motors (Kia). We expect HMC and Kia’s 2021 sales to recover to 6.87mn units (+13.3% y-y). In addition to automotive steel plate sales growth, Hyundai Steel’s ASPs should pick up going forward on product mix adjustments.
We note that the firm is now establishing a growth vision for its hydrogen business focused on metal separators for fuel cells and hydrogen production (current hydrogen capacity of 3,500 tons pa; planned to rise to 37,200 tons pa) as part of Hyundai Motor Group (HMG)’s hydrogen vehicle development roadmap. In addition, Hyundai Steel is responding to changes in steel demand arising from greater adoption of environmentally-friendly vehicles, such as new demand for metal battery case materials for xEVs. Meanwhile, the company has separated its forging & casting business and suspended operations at its color steel and electric furnace thin-plate HR business amid ongoing business portfolio adjustments focusing on the restructuring of low-yield businesses.
Source:Business Korea
