Domestic/overseas Industry Conditions Improving
The author is an analyst of KB Securities. He can be reached at moonjoon.chang@kbfg.com. -- Ed.
Maintain BUY, target price of KRW66,000
We maintain BUY and our TP of KRW66,000 for Hyundai E&C. Earnings have yet to turnaround because of a delayed rebound in overseas revenue as well as 2Q21 one-off losses, but we maintain the stock as our second-best industry pick given the following:
(1) The company’s standout housing supply and ample overseas order pipelines indicate it is in the best position among peers amid improving domestic/overseas industry conditions.
(2) The prospect of overseas revenue rebounding from 3Q21 offers higher visibility for future earnings turnarounds.
Exceptional among large builders; ~22,000 units supplied as of 3Q21 (vs. 2021 target of 31,938 units)
In terms of housing supply among large builders, Hyundai E&C continues to be exceptional. On a standalone basis, it has supplied around 22,000 apartment units this year up to 3Q21 (~70% of 2021 target of 31,938 units). We believe the annual target will be achieved given the presale of Yongin Hillstate Monteroy scheduled for October (3,731 units). In addition, housing order wins— a leading indicator of housing business performance—remain favorable, suggesting the solid performance should be sustained through next year. Also, Hyundai E&C is seeking stable business opportunities via aggressive land procurement (e.g., E-mart in Gayang-dong, Le Meridien Seoul in Gangnam) and pursuing additional margin improvement via participation in construction projects as a developer.
Cumulative overseas orders worth ~KRW2.3tn as of 3Q21; annual target easily achievable
On a standalone basis, Hyundai E&C’s 3Q21 cumulative overseas order book stands at ~KRW2.3tn. In our view, its 2021 overseas target of KRW6.0tn is easily achievable given the current pipeline, which includes Saudi Arabia’s Jafurah Gas project (USD3.0bn; commercial bids completed), the Philippines’ railway project (USD1.5bn), Qatar’s hospital project (USD300mn) and Peru’s airport project (USD500mn).
3Q21 forecast: Earnings to meet market consensus
For 3Q21, we forecast consolidated revenue of KRW4.54tn (+12.4% YoY, +3.7% QoQ), OP of KRW225.3bn (+61.1 YoY, +59.8% QoQ) and NP (attributable to controlling interests) of KRW124.7bn (+123.8% YoY, +168.8% QoQ), which meets the market consensus. We expect an earnings turnaround, as we believe (1) 3Q21 overseas revenue (standalone) will rebound YoY/QoQ for the first time since 3Q19 and (2) domestic revenue will bounce back.