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Weak 2Q26 results; re-rating potential remains intact

2Q26 review: OP misses consensus by 22%

For 2Q26, Hyundai Steel reported consolidated revenue of W6.11tr (+2.7% YoY, +6.4% QoQ) and operating profit of W57.7bn (-43.3% YoY, +267.5% QoQ; 22% below the consensus of W74.4bn). On a standalone basis, the firm swung to an operating profit of W11.1bn (vs. -W72.5bn in 1Q26), as higher sales volume during the peak season and a recovery in selling prices more than offset the impact of increased raw material costs. Despite the deconsolidation of Hyundai IFC, consolidated subsidiaries recorded aggregate operating profit of W46.6bn, supported by favorable FX and the recognition of remaining unrealized gains. While consolidated pretax profit turned negative (-W0.6bn), the company posted net profit of W12.1bn thanks in part to a tax benefit.

2H26 outlook: Earnings recovery and growing AI/energy-related demand

We expect standalone operating profit to improve markedly in 2H26 (vs. 1H26). The continued rise in domestic steel prices following antidumping measures, together with the full impact of selling price hikes for major automotive and shipbuilding customers, should support earnings. Meanwhile, the stabilization of both raw material prices and the USD/KRW rate should ease input cost pressures, supporting wider spreads.

For long products, we see limited scope for a meaningful near-term recovery, given current construction indicators. That said, the outlook remains strong for AI-related demand (e.g., semiconductor fabs and data centers) as well as demand related to energy infrastructure. Against the backdrop of the government’s “three mega projects” initiative and the expected build-out of large-scale AI data centers, we expect the company to secure additional data center-related orders (on top of orders already secured for seven domestic data centers). Meanwhile, following the sharp increase in long product exports (e.g., rebar) to the US in 2026, the company plans to focus on improving the sales mix rather than expanding volume further.

Maintain Buy and TP of W47,000

We maintain our Buy rating and target price of W47,000 (based on a P/B of 0.3x). At the current valuation (2026F P/B of 0.16x), downside risk appears limited. However, near-term rebound momentum has weakened amid the slow improvement in China’s supply/demand balance and the delayed recovery in the domestic construction market. In addition to improving earnings, we believe growing demand from new applications―including data centers, ESS enclosures, and grid infrastructure―could help narrow the stock’s valuation discount. The potential announcement of a shareholder return policy in 2H26 could also provide support for the share price.