Hyundai Oilbank IPO Withdrawn
The author is an analyst of KB Securities. He can be reached at wchun@kbfg.com. -- Ed.
Reinstate coverage with BUY rating, target price of KRW82,000
We reinstate coverage on HD Hyundai (previously HHI Holdings) with a BUY rating and 12m TP of KRW82,000. We previously suspended coverage because KB Securities became the lead manager of subsidiary Hyundai Oilbank’s IPO. Our P/B-ROE-based TP (10.4% COE, 3.8% TGR) reflects a 40% holding company discount and implies 3.8x 12m fwd implied P/E, 0.7x P/B (7.2% dividend yield).
Hyundai Oilbank IPO withdrawn
On Jul 21, Hyundai Oilbank withdrew its IPO plan. EV was initially estimated at KRW10tn post-IPO, but a decline in the KOSPI and falling oil prices made the company believe fair EV would be difficult to reach. Also, the company, which aimed to raise KRW1tn via the IPO, saw its balance sheet improve thanks to the oil refining upcycle, creating more room for dividend payout. Hyundai Oilbank’s avg. 2015-2021 payout ratio was 66.4%; 2022E-23E combined OP is estimated at KRW6.0tn.
Expect OP uptrend (KRW1.1tn in 2021→KRW4.2tn in 2022E→KRW4.4tn in 2023E) due to addition of new businesses and company-wide turnaround
Earnings should continue to be solid, with 2022 revenue/OP of KRW61.5tn (+119% YoY)/KRW4.2tn (+287% YoY) and 2023 revenue/OP of KRW66.2tn (+8% YoY)/KRW4.4tn (+6% YoY). Marked improvement in earnings fundamentals should be attributable to (1) a booming oil refining industry, (2) the addition of new businesses and (3) a company-wide turnaround.
Despite the oil refining market poised to peak this year, HD Hyundai should see 2023 earnings surpass performance during the industry upcycle thanks to strong gas prices and new MFC facilities coming online. We see a turn to profit for KSOE (incorporated as a consolidated subsidiary in March 2022; 2022E revenue at KRW17.3tn) in 3Q22 as a positive. Dividend payouts—a key factor behind stock performance—should continue to expand on growing subsidiary earnings. As such, we see the stock outperforming Refineries and Shipbuilding. We expect Shipbuilding as a whole to see earnings recover in 2022-26 on the back of strong order books and declining heavy plate prices, but there should be difficulties in winning new orders amid economic malaise, an unfavorable FX rate, lower freight rates and higher labor costs.