In 1Q22, profitability likely suffered at Hyundai Steel’s blast furnace (plate products) business, with raw material price increase arriving alongside ASP decline. For steel bar products, profitability was likely defended by brisk construction market conditions. While earnings momentum has weakened for the firm in 1H22, we see valuation merit in the shares.
Despite rising concerns over demand slowdown, buying remains valid from valuation perspective
While adhering to a Buy rating, we lower our TP for Hyundai Steel (004020.KS) by 17.6% from W68,000 to W56,000. Our new TP corresponds to a 2022E P/E of 7.8x and P/B of 0.4x (ROE of 5.2%). We cut our 2022 and 2023 EPS forecasts by 7.6% and 9.5%, respectively, noting: 1) cost increase; 2) weakening steel demand in China due to the spread of Covid-19 amid China’s weakening will to curb steel production; and 3) the chances of global economic slowdown due to the narrowing gap between US short- and long-term interest rates and aggressive monetary tightening policies.