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Earnings to improve in 2H; visibility on new demand drivers to increase

2Q26 preview: OP likely to miss consensus by 12%

For 2Q26, we expect Hyundai Steel to report consolidated revenue of W6.08tr (+2.3% YoY, +6.0% QoQ) and operating profit of W66.7bn (-34.5% YoY, +324.8% QoQ; 12% below the consensus of W75.4bn). We estimate spreads improved QoQ, as higher selling prices likely more than offset cost pressures from key raw materials (coking coal, steel scrap, etc.). Sales volume likely continued to increase, supported by the start of the peak season and the impact of long product exports to the US. Meanwhile, we estimate subsidiaries’ aggregate operating profit fell to roughly half the 1Q26 level, reflecting lower tariff refunds and the absence of unrealized gains.

Spreads and earnings to improve in 2H; non-residential long product sales to rise

We continue to expect earnings to improve in 2H26 following a weak 1H26, with spreads continuing to widen through year-end. In particular, for flat products, the likelihood of price increases in 2H26 has risen substantially, as contract prices under negotiation with major customers (including automakers) are expected to reflect formula-based adjustments for higher raw material costs and market prices.

Meanwhile, for long products, we see limited scope for a meaningful near-term recovery in residential-related demand, given current construction indicators (e.g., housing starts and presales). That said, we see upside to sales volume from semiconductor sector investments and Hyundai Motor Group projects (including the Saemangeum, Global Business Center, and Bokjeong R&D complex projects). In addition, while data center-related sales currently account for only around 3% of long product revenue, we see room for further demand growth as major government initiatives related to semiconductors, physical AI, and AI data centers take shape.

Maintain Buy; lower TP by 13% to W47,000

We lower our target price for Hyundai Steel by 13% to W47,000 (from W55,000), reflecting a reduction in our target P/B from 0.35x to 0.3x. Our revised target multiple represents a 40% discount to the average P/B seen during the 2016?17 hot-rolled steel price up-cycle, reflecting ongoing weakness in the long product market.

Despite recent stock market volatility, we believe downside risk is limited at the current valuation (2026F P/B of 0.17x). We expect the stock to undergo a meaningful re-rating once earnings improve on higher selling prices and new demand drivers (including data centers, ESS enclosures, and power grid infrastructure) become more visible.