The author is an analyst of NH Investment & Securities. He can be reached at will.byun@nhqv.com. -- Ed.

Hyundai Steel’s 2Q22 OP should slightly exceed consensus. In 2H22, however, earnings decline is expected due to sluggish steel demand. Reflecting the outlook for market deterioration, Hyundai Steel shares have fallen to a 2022E P/B of 0.2x. China’s economic stimulus demand is forecast to emerge after the summer low season. Profits to decline in 2H22 due to falling steel prices Although adhering to a Buy rating, we lower our TP for Hyundai Steel (004020.KS) by 23.2% from W56,000 to W43,000. Our TP corresponds to a 2022E P/E of 3.8x and P/B of 0.3x (ROE of 8.0%). Concerns are rising over sluggish steel demand amid aggressive monetary tightening and the prospects for further economic downturn. Although sound earnings were likely achieved throughout 1H22, earnings decline is likely in 2H22. Nevertheless, Hyundai Steel’s share price, which has fallen to a 2022E P/B of 0.23x, looks to have excessively reflected concerns over market deterioration. Global steel prices are on the decline. Over the past one-month period, the domestic HR distribution price has slid by W100,000/ton (-7.8% m-m), while China’s HR price has dipped by 11.8% per ton. Domestic blast furnace operators are expected to cut prices. Already, the domestic HR product price was slashed by W50,000/ton in June and July, respectively, with the price for CR products being cut by W70,000~100,000/ton in July. Iron ore and hard coking coal prices are also weak. On Jul 5, the price of iron ore was US$112/ton, and the price of hard coking coal was US$285/ton, down 21.5% and 31.9%, respectively, from the previous month. Affected by falling product prices, profits are likely to tumble in 2H22. Hyundai Steel’s consolidated 2H22 OP is forecast at W1,014.4bn (-34.5% h-h). 2Q22 preview: OP to exceed consensus by 5.3% Hyundai Steel is forecast to log consolidated 2Q22 sales of W7,676.5bn (+36.5% y-y, +10.0% q-q), OP of W850.3bn (+55.9% y-y, +21.9% q-q), and NP (excluding minority interests) of W494.5bn (+47.5% y-y, +3.9% q-q), with sales to meet the market projection, OP to top the figure by 5.3%, and NP to miss consensus by 7.0%. In 1H22, automotive steel plate and shipbuilding heavy plate increased in price by W150,000/ton and W100,000/ton, respectively. Plate price hikes over March~May should result in profit improvement at Hyundai Steel. Long product earnings are believed to have remained strong thanks to price hikes. At the steel pipe business, OPM likely climbed to the 10%-range on strong overseas energy-related demand.