[E-Daily Reporter Kwon Oh Seok ] Meritz Securities announced on the 13th that it is maintaining its “Buy” investment rating and target price of 43,000 won for HYUNDAI STEEL(004020).

Jang Jae-hyuk, an analyst at Meritz Securities, stated, “The key to future earnings lies in price negotiations for automotive steel sheets in the second half of the year. While prices for automotive steel sheets in the first half are understood to have decreased compared to the second half of last year, input costs—including raw material prices and exchange rates—have since risen.” He added, “Accordingly, we believe there are grounds for a price increase in the second-half negotiations to reflect these rising costs.”
He continued, “However, the actual magnitude of the increase and the timing of its implementation depend on the outcome of the negotiations. If the cost increases from the first half are sufficiently reflected in second-half contract prices, the profitability of sheet products could improve further starting in the third quarter.” He added, “Sales volume is expected to remain robust. There is a base effect from the POSCO NC& Co., Ltd. accident in the third quarter of last year, and the impact of Chinese hot-rolled coil export surges ahead of provisional tariffs is expected to weaken this year,” he elaborated.
Consolidated operating profit for the second quarter is projected to be 68.7 billion won (down 32.5% year-over-year), falling 4.5% short of the consensus estimate of 71.9 billion won. Stand-alone operating profit is projected at 26.9 billion won (a return to profitability). Analyst Jang explained, “Sales volume reached 4.438 million metric tons (+4.1% quarter-over-quarter), largely driven by increased sales of long products. Despite significant price hikes in the first half of the year, the improvement in roll margins was limited due to rising prices for coking coal and scrap iron, coupled with the weakening of the Korean won.”
He added, “We estimate that rolling margins for both blast furnaces and electric arc furnaces expanded by approximately 10,000 to 20,000 won per metric ton compared to the previous quarter. Excluding non-consolidated items, the volatility caused by the reversal of unrealized gains and losses has been eliminated, and profits are expected to return to normal levels.”
He emphasized, “While the current stock price is at a historical low, indicating low absolute valuation pressure, it is difficult to explain the stock price rebound solely based on low multiples. Although positive changes in medium- to long-term supply and demand are emerging—such as the government’s recent expansion of SOC investment (mega-projects) and continued rebar exports to the U.S.—it is still too early to conclude that these have translated into earnings improvements sufficient to meaningfully boost the company’s ROE (return on equity).”
He further added, “If price hikes in the second half sufficiently offset rising costs, we can expect roll margins and ROE to normalize starting in the third quarter. Conversely, if price pass-through is delayed or implemented in stages, it may take time for the stock to be revalued, despite its low valuation.”