Overseas Revenue Expected to Increase from 3Q21
The author is an analyst of KB Securities. He can be reached at moonjoon.chang@kbfg.com. -- Ed.
Maintain BUY and raise target price to KRW66,000
We maintain BUY and raise our TP by 7.3% to KRW66,000 to reflect: (1) a lowered COE (8.0%→7.8%) resulting from changes to various assumptions and (2) a raised ROE (7.71%→7.79%) based on solid domestic order intake in 1H21. Notwithstanding the stock rally in 1H21, Hyundai E&C continues to be our second-best pick among builders based on its highly visible earnings turnaround and potential benefits from improving industry conditions at home and abroad.
About 12,500 homes supplied in 1H21 (standalone basis) vs. annual target of 31,938 homes
Hyundai E&C’s solid performance stands out in terms of housing supply and order book. The company is guiding 2021 supply of 31,938 homes, and we estimate 12,500 homes were supplied in 1H21 (initial 1H21 guidance of 11,000 homes has been achieved). We find it impressive that Hyundai E&C is seeking stable business opportunities via aggressive land procurement (e.g., sites for E-mart in Gayang-dong, Seoul, and Le Meridien Seoul) and pursuing additional margin improvements through participation in construction projects as a developer.
1H21 overseas order book at KRW2.0tn (vs. annual target of KRW6.0tn)
On a standalone basis, the 1H21 overseas order book stands at around KRW2.0tn. The company’s annual order target of KRW6.0tn looks to be easily achievable, in our view, given the current pipeline, which includes Iraq’s Baghdad railway project (USD1.5bn), Egypt’s nuclear plant project (USD1.5bn), Asia’s plant project (USD1.0bn) and Peru’s airport project (USD500mn), all of which commercial bids have been completed.
2Q21 preview: Earnings to be in line with market consensus on stabilizing margins despite limited top-line growth
For 2Q21, we estimate consolidated revenue of KRW4.58tn (+0.7% YoY, +10.3% QoQ), OP of KRW227.7bn (+47.9% YoY, +13.3% QoQ) and NP (attributable to controlling interests) of KRW120.0bn (+160.4% YoY, -11.0% QoQ), which would meet the market consensus. Revenue should remain little changed YoY because overseas revenue should continue to be weak until 2Q21 and domestic revenue should see limited growth thanks to frequent heavy rain in June. However, NP (attributable to controlling interests) should increase significantly YoY, as narrowing overseas losses should improve profit margins. We see overseas revenue increasing in earnest beginning in 3Q21, adding to earnings improvement.