Hyundai E&C
The author is an analyst for NH Investment & Securities. He can be reached at minjae.lee@nhqv.com -- Ed.
Hyundai E&C’s 2Q23 results beat both consensus and our estimates on increased sales at its housing business. In addition to likely order growth for overseas petrochemical and infrastructure projects, ongoing expansions in nuclear and offshore wind power construction activity are also laying down a path for mid/long-term earnings growth.
Anticipate overseas order expansion
We maintain a Buy rating and a TP of W48,000 on Hyundai E&C. Although the chances of a pre-sale housing market turnaround are low amid difficult real estate market conditions, we adhere to our investment rating on expectations for overseas order growth, backed by: 1) NEOM and additional petrochemical projects following a Saudi Amiral project; and 2) anticipated cooperation with Westinghouse and Holtec for NPP and SMR projects.
We revise up our 2023 OP projection by 14% (versus our previous estimate) to W94.3bn (+64% y-y) in reflection of a recent resurgence in the firm’s housing sales. But, we leave our TP unaltered for now, noting both a drop in the OTC price and reduced net cash at Hyundai Engineering (100%-owned subsidiary of Hyundai E&C).
Moving ahead, Hyundai E&C is highly likely to participate as a construction company in large-scale nuclear power plant (NPP) and small modular reactor (SMR) projects being promoted by Westinghouse and Holtec in Eastern Europe. In addition, related sales are expected to be generated from offshore wind power projects in Korea to be led by Hyundai Steel. Of note, offshore wind power projects to be carried out in Korea by 2025 are to total 6.5GW in power generating capacity, with most of them slated to use ultra-large turbines of 8MW or more.
2Q23 review: Tops expectations thanks to housing sales growth
Hyundai E&C posted consolidated 2Q23 sales of W7.2tn (+28% y-y) and OP of W223.6bn (+28% y-y), beating consensus and our estimate on: 1) increased housing sales (+W0.55tn) alongside higher construction costs and pre-sales growth at separate subsidiaries; and 2) higher plant sales (+W0.63tn) in line with the expansion of Hyundai Engineering’s overseas project processes. For reference, construction costs at Hyundai E&C’s housing business upped more than W1tn in 1H23 alone.