To Benefit from Domestic Offshore Wind Market Expansion
The author is an analyst of NH Investment & Securities. He can be reached at minjae.lee@nhqv.com. -- Ed.
In line with global efforts towards carbon-neutrality, the domestic offshore wind market is set to bloom in the near future. We expect Hyundai E&C to become a major beneficiary of the domestic offshore wind market expansion, thanks to synergies with subsidiary HESI and direct investment in wind power projects using its ample cash holdings. We maintain Hyundai E&C as our sector top pick for 2022.
Lofty valuations well justified
We maintain a Buy rating and TP of W65,000 on Hyundai E&C. We offer the company as our sector top pick for 2022, anticipating: 1) smooth sailing for its domestic housing business (in terms of new orders and pre-sales), unlike for other constructors; 2) sustained synergies with HESI in the domestic offshore wind market; and 3) the listing of Hyundai Engineering, whose IPO price looks reasonable compared to Samsung Engineering’s current valuation. While sluggish overseas orders due to pandemic effects are disappointing, it should prove favorable for the firm’s earnings stability.
Hyundai E&C’s current valuation (2022F P/E of 13x) is higher than the sector average; however, we believe that the lofty valuation is well justified, as the firm boasts ample growth potential in non-domestic housing markets. In particular, we note: 1) wholly-owned subsidiary HESI’s growth potential in the offshore wind power market; 2) the firm’s W1.7tn in net cash holdings (non-consolidated); and 3) the fact that the nuclear power business is specialized in both small module reactors (SMRs) and large-scale nuclear power plants.
Potential of offshore wind power and nuclear power markets deserves attention
The domestic offshore wind power market is to take off in earnest from 2022. And, Hyundai E&C deserves attention given its association with HESI (a strong player in the domestic wind power market) and its securing of related business approval and licensing. We note that the domestic offshore wind power market is forecast to expand to W100tn by 2030 (12GW fixed offshore and 5GW floating offshore). Meanwhile, Hyundai E&C is also capable of conducting both large-sized nuclear power plant projects and SMR projects. Potential competitors in these markets are Samsung C&T and Daewoo E&C.