The author is an analyst of KB Securities. She can be reached at hyejung.jung@kbfg.com. — Ed.
4Q22P consolidated operating loss of KRW275.9bn (turn to red YoY): Far below consensus
ㅡ Hyundai Steel reported 4Q22P revenue of KRW6.0tn (-7.1% YoY, -14.6% QoQ), operating loss of KRW275.9bn (TTR YoY, TTR QoQ), and net loss (attributable to controlling interests) of KRW276.9bn (TTR YoY, TTR QoQ). Preliminary operating loss missed the market consensus by KRW377.6bn. On a standalone basis, revenue came in at KRW5.0tn (-12.5% YoY, -16.9% QoQ), operating loss at KRW293.4bn (TTR YoY, TTR QoQ), and net loss at KRW310.0bn (TTR YoY, TTR QoQ).
Lower-than-expected results due to market slowdown and strikes
ㅡ 4Q22 operating income swung to a loss due to: (1) steel market downturn in 2H22; (2) decline in sales volume resulting from lengthy strikes; and (3) one-off expenses related to the strikes.
ㅡ In 4Q22, steel product sales volume contracted 14.8% YoY and 13.2% QoQ to 3.929mn mt. Blast Furnace sales volume declined 18.6% YoY on weaker HRC/heavy plate sales volume (-41.6%/-16.9% YoY). Electric Arc Furnace sales volume shrank 9.2% YoY, depressed by a 20.6% YoY plunge in rebar sales volume.
ㅡ 4Q22 steel product ASP amounted to KRW1.275mn/mt, rising 2.7% YoY but sliding 4.3% QoQ. Blast Furnace ASP came in at KRW1.214mn/mt (+0.02% YoY, -6.9% QoQ), and Electric Arc Furnace ASP at KRW1.353mn/mt (+5.7% YoY, -1.3% QoQ). The QoQ ASP decline was inevitable, considering the slowdown in the global steel market and weaker steel product demand amid growing risks in the domestic construction industry.
ㅡ One-off factors include higher fixed cost burden due to strikes (i.e., Dangjin plant, Cargo Truckers Solidarity Union), inventory valuation losses upon market downturn, and expenses related to typhoon damage repairs. In particular, strike-related expenses and inventory valuation losses were major contributors to the disappointing operating results.
Earnings improvement to hinge on demand recovery driven by economic stimulus in 2H
ㅡ The global steel market is on a downward path due to continued interest rate hikes and monetary tightening in major economies. The slump in the domestic real estate market (downstream market for long products) is also a risk factor. In addition, rapidly rising electricity rates are pushing up Electric Arc Furnace input costs. Amid slowing demand, it remains uncertain whether the company will be able to pass through all cost increases to prices.
ㅡ The steel market is forecast to turn around in 2H as China aggressively pursues construction-led economic stimulus. However, such an improvement is not likely to be sufficient for allowing the company’s earnings to return to 2022 levels.
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