Daol Investment Securities Lowers Hyundai Steel's Target Price Amid Weak Q2 Performance

 
Daol Investment Securities announced on July 14 that it has lowered the target price for Hyundai Steel to 46,000 won while maintaining its investment rating. The adjustment comes as the company’s second-quarter performance is expected to fall short of market expectations due to rising raw material costs and high exchange rates.
 
Lee Jung-woo, an analyst at Daol Investment Securities, stated, "Hyundai Steel's consolidated revenue for the second quarter is projected to reach 6 trillion won, marking a 1.5% increase year-on-year and a 5.2% increase from the previous quarter, while operating profit is expected to decline by 29.5% year-on-year to 71.7 billion won. This is anticipated to be below market consensus."
 
He added, "Although Hyundai Steel is expected to turn from a loss in the first quarter to a profit in the second quarter, the profit margin is likely to be lower than anticipated. The rise in iron ore and coal prices continued through the first quarter of this year, and the increase in the won-dollar exchange rate has exacerbated the burden of raw material costs."
 
The analyst noted that the instability in scrap metal supply could limit the profitability improvements for steel companies, despite rising product prices. He assessed, "While prices for rebar and flat products are showing a gradual improvement, the impact of cost burdens has been more significant than expected, slowing the pace of spread improvement."
 
However, he expects sales volumes to remain robust. The second-quarter sales volume is estimated at 4.45 million tons, a 1.8% decrease year-on-year but a 4.3% increase from the previous quarter. Although the traditional peak season effect has weakened due to sluggish construction activity, the increase in rebar exports to the United States is driving a recovery in rebar sales.
 
The outlook for improved performance in the second half of the year remains valid. Lee stated, "While cost pressures may continue through the third quarter, we expect performance improvements as we approach the end of the year. An increase in negotiation prices for automotive steel sheets is anticipated in August, and the volumes of rebar contracted at lower prices last year are expected to gradually be resolved."