[Click eStock] Hyundai Construction Equipment, Full-Scale Business Structure Reorganization Phase... Investment Opinion 'Neutral'

KB Securities Report

[Asia Economy Reporter Minji Lee] On the 23rd, KB Securities downgraded its investment opinion on Hyundai Construction Equipment from Buy to Neutral and lowered the target price by 3% to 50,000 KRW.

Recently, Hyundai Construction Equipment has been actively restructuring its business governance. The largest shareholder changed to Hyundai Genuine, the intermediate holding company for the construction equipment division of Hyundai Heavy Industries Group. Subsequently, it sold the mass production parts business of its subsidiary Hyundai Coremotion to Hyundai Genuine and merged with Hyundai Coremotion. Additionally, within this year, it plans to spin off the industrial vehicle division and sell it to Hyundai Genuine, then acquire a 40% stake in the Chinese holding company and 100% stake in the Brazilian subsidiary from Korea Shipbuilding & Offshore Engineering.

Jung Dong-ik, a researcher at KB Securities, analyzed, "Once this somewhat complex series of processes is completed, the company will be able to focus on construction equipment production and services," adding, "Earnings estimates will be adjusted due to the sale of the industrial vehicle division."

Regarding the impact on next year's performance from the sale of the industrial vehicle division as the business structure is reorganized, based on existing estimates, sales are expected to be around 526.3 billion KRW and operating profit about 22.4 billion KRW. The sale of Hyundai Coremotion's mass production parts business had little impact on performance since most of it was eliminated as internal sales when preparing consolidated financial statements. The additional acquisition of the Chinese holding stake will increase the controlling shareholder's equity interest in the Chinese production subsidiary from the current 36% to 60%, and the acquisition of the Brazilian subsidiary is expected to increase annual sales by approximately 10 billion KRW.

Currently, the forecast for domestic excavator sales in China has been revised downward from 324,000 units to 297,000 units. Although high growth continued until the first quarter, since April, due to factors such as the Chinese government's adjustment of the pace of economic stimulus, year-on-year negative growth has persisted. Researcher Jung Dong-ik analyzed, "Foreign-invested companies are also experiencing a decline in market share due to strengthened accounts receivable management, and in the company's case, market share fell from 2.7% for the entire last year to 0.9% as of August this year."