[Click eStock] "HDC Hyundai Development Company, Strong Profitability in Housing Sector... Target Price Up 18%"

Hana Financial Investment Report

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained a buy rating on HDC Hyundai Development Company on the 3rd and raised the target price by 18% from the previous level to 39,000 KRW. This is based on the judgment that strong housing sales and the commencement of development pipelines will result in favorable profitability.

In the fourth quarter of last year, HDC Hyundai Development Company recorded sales of 894.2 billion KRW, down 12% year-on-year. Operating profit increased by 5% during the same period to 168.5 billion KRW, exceeding market expectations (123 billion KRW) by about 37%.

In the outsourced housing sector, the cost ratio recorded 73%, showing the largest decline. Seunghyun Yoon, a researcher at Hana Financial Investment, said, "From the fourth quarter, profit recognition began at the Dunchon Jugong site, which was previously reflected at a 100% cost ratio," adding, "Additional cost ratio improvements occurred due to the completion timing of some large-scale contract projects." In the in-house housing sector, the cost ratio was maintained below 70%, showing overall favorable profitability.

This year marks the point when housing supply, which was sluggish at about 6,000 units in 2019, is fully reflected in sales. The significant increase in pre-sales is also positive. Following last year's 15,000 units pre-sale, a favorable housing supply of at least 15,000 units and up to 18,000 units is expected this year as well. From the third quarter, the commencement of development pipelines in the metropolitan area, such as Gongneung Station area, Yongsan Railroad Hospital site, and Uijeongbu complex, is anticipated, suggesting that long-term profit capacity has entered an upward phase.

However, unlike last year, there are no in-house project sites where sales are recognized at the time of delivery, so external growth is expected to be absent. Last year, sales recognition based on in-house project delivery amounted to about 200 billion KRW.

Researcher Seunghyun Yoon said, "This year, along with the increase in housing pre-sales, the full-scale commencement of development pipelines is also expected," adding, "The housing supply measures to be announced around the holidays are expected to include development incentives for idle sites and station areas in Seoul and the metropolitan area, so companies holding multiple development pipelines in the metropolitan area are expected to benefit."