[Click eStock] "Hyundai Construction, Earnings Uncertainty Realized... Orders Positive"

Yuanta Securities Report
Q3 Operating Profit 139.8 Billion KRW...42% Decrease YoY

[Asia Economy Reporter Minji Lee] Yuanta Securities maintained a buy rating and a target price of 450,000 KRW for Hyundai Construction on the 26th. Despite ongoing uncertainties due to the novel coronavirus disease (COVID-19), the company is expected to show clear performance improvements thanks to a substantial backlog of orders.

In the third quarter, Hyundai Construction reported consolidated sales of 4.04 trillion KRW and operating profit of 139.8 billion KRW, down 1% and 41.5% respectively compared to the same period last year. The operating profit fell about 14% short of market expectations.

Researcher Kiryong Kim of Yuanta Securities explained, “Overseas sales declined about 19% year-on-year due to overall delays and shutdowns at overseas sites caused by COVID-19, as well as delays in the full-scale progress of newly started construction projects.”

The operating profit was sluggish due to the recognition of bad debt expenses (selling and administrative expenses) amounting to 50 billion KRW out of 100 billion KRW in unbilled construction work at the UAE Mirfa power plant site. Additional costs (60 billion KRW) related to delays and shutdowns at Hyundai Engineering’s Algeria power plant and Malaysia sites were also reflected. The exchange loss (29.6 billion KRW) caused by the depreciation of the Korean won against the US dollar further widened the pre-tax profit decline compared to the same period last year.

New orders in the third quarter totaled approximately 14.7 trillion KRW, with 9.5 trillion KRW domestically and 5.2 trillion KRW overseas. This exceeds the annual order guidance of 14.6 trillion KRW (6.6 trillion KRW domestic, 8 trillion KRW overseas). Considering additional achievements expected in the fourth quarter from the housing sector, the Iraq oil refinery project (1.5?2 billion USD), Saudi Jafra (1.3?1.5 billion USD), Iraq Baghdad train (1.2?1.3 billion USD), Qatar LNG (10 billion USD), and hospital construction projects in various countries, the improvement in this year’s order performance is expected to be even greater.

However, with an overseas backlog worth 23 trillion KRW and numerous overseas projects, performance uncertainties due to COVID-19 are expected to increase.

Researcher Kim said, “Although uncertainties in performance due to COVID-19 remain, the abundant order backlog secured this year and the lowered performance base will act as clear factors for performance improvement. The steady dividend policy and plans to invest more than 500 billion KRW annually in smart construction are also factors to consider.”