[Click eStock] Hyundai Construction 2Q Operating Profit Expected at 192.7 Billion KRW... 21% Decrease YoY

Securing Hannam 3 District Contract Amid Crisis... Enhancing Brand Value
Expecting Expansion of Premium Urban Renewal Market Share

[Asia Economy Reporter Minwoo Lee] Hyundai Engineering & Construction is expected to record double-digit declines in both sales and operating profit in the second quarter of this year compared to the same period last year. Nevertheless, it is anticipated that the company will enhance its brand value by securing projects such as Hannam 3 District amid the economic freeze caused by the novel coronavirus disease (COVID-19).

On the 1st, Heungkuk Securities forecast that Hyundai Engineering & Construction will achieve sales of 4.001 trillion KRW and operating profit of 192.7 billion KRW in the second quarter of this year. This represents a decrease of 14.5% in sales and 21.4% in operating profit compared to the second quarter of last year. Compared to market expectations, these figures are also expected to fall short by 9.4% and 10.4%, respectively. Including the 1.7 trillion KRW scale Hannam 3 District project, orders are estimated at 6.3 trillion KRW, with an order backlog of 63.3 trillion KRW (3.7 years, based on the 2020 expected sales).

On a standalone basis, Hyundai Engineering & Construction’s building and housing sales are expected to be 1.4 trillion KRW. Considering the one-time sales increase in the housing sector in the second quarter of last year (mainly due to the significant recognition of execution rates at its own site, Gimpo River City), this represents a 17.7% decrease compared to the same period last year. The gross profit margin (GPM) for housing sales is expected to rise from 12.9% in the previous quarter to 15%. Researcher Seungjun Kim of Heungkuk Investment & Securities explained, "Promotional expenses related to the DH Honor Hills specialization applied in the first quarter have been removed," adding, "Including Hyundai Engineering, overseas performance in civil engineering and plants is expected to decline compared to the previous quarter due to construction site shutdowns caused by COVID-19."

Despite the difficult situation, the company is evaluated as having demonstrated the capabilities of a leading construction firm amid the crisis. Researcher Kim stated, "In housing, Hyundai Engineering & Construction secured the Hannam 3 District project against competitors Daelim Industrial and GS Engineering & Construction, continuing its order wins in the premium urban redevelopment market following the 2.6 trillion KRW Banpo 1st District project in 2017," and added, "Just as GS Engineering & Construction’s value of 'Raemian' increased significantly by securing many projects in Gangnam in the absence of Raemian, the value of Hyundai Engineering & Construction’s housing brand can grow even more." As the proportion of urban redevelopment in the housing construction industry increases, polarization between large construction companies and small-to-medium-sized construction companies based on brand is intensifying, leading to an analysis that Hyundai Engineering & Construction can achieve a high market share in the future.

Against this backdrop, Heungkuk Securities maintained a 'Buy' investment rating and a target price of 45,000 KRW for Hyundai Engineering & Construction. The closing price on the previous day was 33,050 KRW.