Smart Factory Completed in Shanghai in 1Q21
The authors are analysts of Shinhan Investment Corp. They can be reached at eoyeon.hwang@shinhan.com and younghoon.song@shinhan.com, respectively. – Ed.
1Q21 OP of KRW24.9bn (+9.0% YoY) falls short by 14.1%
Hyundai Elevator posted operating profit of KRW24.9bn (+9.0% YoY) on sales of KRW447.9bn (+9.6% YoY) for 1Q21, missing the consensus estimate of KRW29bn by 14.1%. Earnings fell short due to the high base effect created by strong 1Q20 performance of the finance business.
Sales from equipment manufacturing increased 17.7% YoY to KRW318.6bn. New apartments available for move-in have started to rebound with progress in remodeling projects. Sales from high-margin installation/maintenance services came in at KRW101.4bn (+8.3% YoY). Stable top-line growth continues on the rising number of aging elevators and stricter safety regulations.
Mainstay business recovery to be led by presale volume growth and new Shanghai factory
For 2021, we forecast sales at KRW2tr (+10.7% YoY) and operating profit at KRW156.1bn (+4.1% YoY). The number of elevators installed is confirmed to have gone up thanks to the rebound in presale apartment volume (+12.6% YoY) in 2019. Sales from domestic elevator installations are expected to grow 12.9% YoY to KRW1.1tr. Overseas sales will likely improve with the ramp-up of a new smart factory (annual capacity of 25,000 units) in Shanghai, China completed in 1Q21. Installation/maintenance services should bring in sales of KRW532.3bn (+8.5% YoY).
Retain BUY and raise target price by 22.6% to KRW65,000
We retain our BUY rating on Hyundai Elevator and raise our target price by 22.6% to KRW65,000. We applied a target PER of 22.1x (2021F PER average of global peers) to a 12-month forward adjusted EPS of KRW2,944 (excluding KRW150bn in proceeds from the sale of Icheon plant).
Expectations for growth in new apartments and presale volume have brought the attention of investors to construction equipment/materials stocks. Elevators, which are installed 6-12 months prior to the completion of apartments, are likely to benefit from the expanding presale volume. The ramp-up of the Shanghai factory with 3.5 times bigger capacity vs. existing facilities should also lead to growth in order intake.