Hyundai Construction Sees Increase in Housing Supply and Overseas Site Sales... Stock Price Expected to Rise

[Asia Economy Reporter Jang Hyowon] Hyundai Engineering & Construction announced poor performance last year due to the novel coronavirus (COVID-19). However, the market expects Hyundai E&C's profits to improve this year with an increase in housing supply volume and revenue realization from overseas sites.

On the 22nd, Hyundai E&C announced that its consolidated operating profit for last year was 549 billion KRW, down 36.1% from the previous year. Sales decreased by 1.8% to 16.9709 trillion KRW, and net profit fell 60.3% to 227.7 billion KRW.

Looking at the fourth quarter alone, sales were 4.3254 trillion KRW and operating profit was 89.9 billion KRW, down 6.6% and 47.2% respectively compared to the same period last year. The operating profit significantly missed the consensus (market average forecast) of 163 billion KRW.

This is analyzed to be due to an additional cost of 100 billion KRW reflected in some projects caused by the prolonged COVID-19 situation. Last year, the overseas losses recognized by Hyundai E&C's separate entity due to COVID-19 amounted to about 230 billion KRW.

However, the market expects Hyundai E&C to overcome last year's slump this year. First, an increase in housing supply is anticipated. In this earnings announcement, Hyundai E&C set this year's sales target at 31,000 units for Hyundai E&C headquarters and 20,000 units for Hyundai Engineering, totaling 51,000 units.

This accounts for about 12% of the expected sales share this year, ranking at the top of the market. This is attributed to Hyundai E&C's housing business order strategy expanding from the existing redevelopment projects to general contracting and quasi-self projects.

Furthermore, sales from overseas sites are expected to become active this year. Hyundai E&C's 'Saudi Mazan Oil/Gas PFT' is the overseas site with the largest contract balance among ongoing projects, but sales recognition was very low last year due to COVID-19. Therefore, sales recognition of about 1 trillion KRW is expected this year.

Yoon Seunghyun, a researcher at Hana Financial Investment, said, “Hyundai E&C is at a point where it can expect a profit growth cycle over the next 2-3 years based on an increase in housing supply and normalization of major overseas sites rather than short-term performance improvement,” adding, “The stock price is likely to show an upward trend within the year.”

Jang Moonjun, a researcher at KB Securities, explained, “Although the fourth-quarter performance was a disappointing shock compared to lowered expectations, the impact on the stock price will not be significant as the poor performance trend had already been anticipated.”