KB Securities reported on October 7 that Hyundai Steel's sales for the third quarter are expected to be weaker than anticipated, leading to an operating profit that falls below market expectations. The firm maintained its investment rating of 'Buy' and a target price of 40,000 won. However, it anticipates improvements in sales volume and spreads in the fourth quarter, along with long-term benefits from investments in U.S. steel mills and increased demand for AI data centers.
Choi Yong-hyun, a researcher at KB Securities, projected Hyundai Steel's operating profit for the third quarter to be 66.2 billion won, with an operating profit margin of 1.2%. This figure is 43% lower than the market consensus of 116 billion won.
While the spread improved due to price increases for automotive products, the strong won limited the extent of price hikes for overseas sales, contributing to the disappointing performance.
KB Securities expects the spread in the third quarter to improve by 13,000 won compared to the previous quarter, while sales volume is projected to decrease to 4 million tons. The standalone operating profit is estimated to be only 21.6 billion won.
Looking ahead to the fourth quarter, the firm predicts improvements in both sales volume and spreads compared to the previous quarter. The anticipated increase in automotive prices and reduced raw material costs due to the strong won are expected to support spread improvements. However, rising prices for raw materials like coking coal could pose challenges.
As a long-term growth driver, KB Securities highlighted investments in U.S. steel mills. Hyundai Steel's planned U.S. facility will have an annual production capacity of 2.7 million tons, with 1.4 million tons already secured for specific customers, including 400,000 tons each for Hyundai Motor and Kia, and 600,000 tons for POSCO.
Choi stated, "We expect performance to rise rapidly after commercial production begins in the first quarter of 2029," adding that while recent interest rate hikes may increase financing costs beyond previous expectations, the U.S. steel market remains robust.
The expansion of AI data centers is also seen as a key investment point for Hyundai Steel. The demand for H-beams used in data centers is significant, and Hyundai Steel uniquely offers a total package of both plates and bars in South Korea.
Choi noted, "While the steel industry continues to face an oversupply situation in terms of demand and supply, we expect demand driven by AI data centers and the introduction of additional anti-dumping regulations to gradually alleviate the oversupply. Among domestic steelmakers, Hyundai Steel is likely to benefit the most from the momentum generated by AI data centers."
* This article has been translated by AI.
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