IPARK to Shine in non-Gangnam Reconstruction Markets
The author is an analyst of NH Investment & Securities. He can be reached at minjae.lee@nhqv.com. -- Ed.
HDC Hyundai Development Company looks set to perform strongly in the reconstruction project markets of Mokdong, Yeoido, and First New Town areas. In particular, its earnings momentum should accelerate from 2022, when its development projects at Kwangwoon University station, the Yongsan Railway Hospital site, and Gongneung station area should begin generating tangible results.
IPARK: Strength to shine in non-Gangnam reconstruction markets
Adhering to a Buy rating on HDC Hyundai Development Company, we raise our TP from W38,000 to W42,000 on an upward adjustment to the target EV/EBITDA multiple applied to the construction division from 4.0x to 4.5x. The firm’s earnings will likely remain tepid through end-1H21, given sluggish apartment pre-sale records in 2019. But, aiming to achieve 2021 apartment pre-sale volume of 15,000 units, the company’s sales should begin recovering gradually from 2H21. We point out that in the reconstruction market, HDC Hyundai Development Company’s IPARK brand is relatively less popular compared to other premium brands (ie, Raemian, Xi, and THE H), and accordingly, the firm is expected to secure reconstruction orders mostly in the less competitive Mokdong, Yeoido, and First New Town area reconstruction project markets, rather than in hotly-contested Gangnam.
Valuation merits to strengthen gradually
As of 4Q21, HDC HDC had a debt ratio of 123% and net cash of W0.3tn on a consolidated basis, figures that are lower than the construction sector averages. In the wake of its failed bid for Asiana Airlines, the firm is likely to focus more on in-house development projects on its own lands (Kwangwoon University station, Yongsan Railway site, Gongneung station) and new land purchase instead of pursuing major M&As. Moving forward, we believe the firm will stick to its past strategy oriented towards in-house projects and urban renewal (reconstruction/redevelopment) projects in regional metropolitan cities (excluding Seoul & its neighboring cities).
Our new TP is equivalent to a 2021E P/E of 7x, a figure that is on par with the construction sector average. With its top-line growth set to accelerate from 2H21, its valuation merits should further strengthen going forward(TP equivalent to 2022F P/E of 6x).