[Click eStock] Hyundai Construction, Clear Performance as Top Pick in Construction Sector

[Asia Economy Reporter Lee Seon-ae] Yuanta Securities announced on the 16th that it maintains a 'Buy' rating and a target price of 7,000 KRW for Hyundai Construction. It also maintained its status as the top preferred stock within the construction sector.

Researcher Kim Ki-ryong of Yuanta Securities stated, "The gradual realization of new businesses such as the hydrogen business within the Hyundai Motor Group, fuel cells, nuclear power plant dismantling, and small modular reactors is expected to enhance investment attractiveness alongside clear core business growth," adding, "Strengthening ESG through coal phase-out declarations, entry into renewable energy sectors such as solar and biogas, and business diversification including offshore wind power expansion through its subsidiary Hyundai Steel Industry are also considered positive factors."

In the second half of 2021, Hyundai Construction's consolidated sales and operating profit are estimated to increase by 16% and 93%, respectively, compared to the same period last year, demonstrating a clear profit improvement trend. The factors contributing to this improvement are: 1) performance improvement in the housing sector due to expanded domestic pre-sales, 2) gradual revenue contribution expansion from large-scale projects already secured such as Saudi Marjan and Panama Metro, and 3) a base effect from additional costs reflected in the same period last year due to COVID-19. In the second quarter of 2021, although an unusual bond call from the client at the Singapore Marina South mixed-use development site, which was awaiting the Final Acceptance Certificate (FAC), resulted in an 80.9 billion KRW decrease in operating profit, the possibility of reimbursement during subsequent negotiations and arbitration is expected to act as an additional factor for performance improvement.

As of the first half of 2021, new orders (consolidated basis) amounted to 18.4 trillion KRW, already achieving 72% of the annual guidance (102% domestic, 35% overseas). The domestic sector has exceeded the annual guidance (123% on a separate basis) with large housing order wins such as Paju Unjeong (about 2 trillion KRW) and Siwha MTV (900 billion KRW). In 2021, housing pre-sale performance (cumulative as of mid-September) also recorded approximately 21,000 units, increasing visibility toward achieving the aggressive housing pre-sale guidance, which is 60% higher than the previous year. Overseas orders are also expected to show results within the year from projects such as Saudi Jafurah (1.3 billion USD), Philippine railway (total 2 billion USD), Egypt El Dabaa nuclear power plant (1.5 billion USD), and hospitals in Qatar/Hong Kong (about 1 billion USD).