South Korea’s second largest steelmaker Hyundai Steel Co. may see improvement in its income statement this year by raising automobile steel plate prices through ongoing negotiations with its primary clients Hyundai Motor and Kia Motors.

Hyundai Steel said in a regulatory filing on Jan. 25 that it posted 1.45 trillion won ($1.27 billion) in operating profit in 2016, down 1.3 percent from a year earlier although sales increased by 3.5 percent to 16.69 trillion won. Its profit was hurt by freeze in automobile steel plates.

The steelmaking unit of Hyundai Motor Group said it was negotiating with its sister companies and primary automaking customers the timing and hike levels to reflect the rebound in international prices of raw materials.

Shinhan Investment Corp. estimated that a gain of 80,000 won in automobile steel sheets currently produced at 904,000 won per ton would translate into additional 280 billion won in the income statement. An increase of 130,000 won per ton would bump up revenue and profit by 455 billion won.

“Given the plateauing in raw material prices, price hike could not go as high as 100,000 won per ton. But a rise by 80,000 won is possible,” said Choi Mun-seon, analyst at Korea Investment & Securities Co.

Shares of Hyundai Steel are deemed undervalued when compared to stocks of peers.

The price-to-earnings ratio (P/E ratio) of Hyundai Steel is at 8.6, sharply below Nippon Steel & Sumitomo Metal Corp. (48.3), Baoshan Iron & Steel Co. (25.9) and ArcelorMittal S.A. (18.3) and Posco (16.5). As their return on equity (ROE) average of between 3 percent and 5 percent late 2016 are not far off from Hyundai Steel’s 5.3 percent, the stock has ample room to go upward, analysts said.

Hyundai Steel is also ready to reap fruit from its heavy investment. It will install 10,000-ton presser to start forging this year. It starts producing prototypes in various types of special steel for mass-production from next year. The steelmaker expects high-end steel product sales would gain 3.4 percent on year to 21.3 million tons.

At 2:36 p.m. Wednesday, shares of Hyundai Steel were traded at 63,400 won, up 1.12 percent from the previous session.

By Park Yoon-gu

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