[Into the Stocks] Large-scale Sales and Overseas Performance... Hyundai Construction Accelerates Rebound from 4Q

Solid Performance Through 3Q... Growth Momentum Highlights Starting 4Q

[Asia Economy Reporter Minwoo Lee] Hyundai Engineering & Construction, which maintained relatively steady performance until the third quarter of this year, is expected to rebound starting in the fourth quarter. This is because overseas orders continue to increase during the period of rising oil prices, and the volume of housing sales has also begun to increase in earnest.

Hyundai Engineering & Construction recorded consolidated sales of 4.3519 trillion KRW and operating profit of 220.4 billion KRW in the third quarter of this year. These figures represent increases of 7.66% and 57.58%, respectively, compared to the same period last year. However, they fell short of market consensus estimates by approximately 4.94% and 1.92%, respectively. This is analyzed to be due to the domestic housing sales timing being slower than expected and overseas construction projects remaining in the initial stages.

The previously gradual upward trend is expected to steepen significantly from the fourth quarter. The third quarter’s separate basis housing sales volume was 6,951 units, with a cumulative total of 21,372 units, which is considered relatively solid. Large-scale site sales such as 'Hillstate Montero-i (3,731 units)' and 'Hillstate Paju Unjeong (3,413 units)' are scheduled for next month, so it is anticipated that the annual target of 31,938 units will be exceeded.

The strong housing sales trend is expected to continue next year as well. Four large projects postponed to 2022 (Pohang Hwanho Park, Dunchon Jugong, Bangbae 5 District, Daejo 13 District) amount to 14,000 units, and the Banpo 1, 2, and 4 District project, currently undergoing relocation with about 6,000 units, is also expected to start construction around July next year. DB Financial Investment researcher Yoonho Cho explained, "The increase in domestic housing market share is a key investment point for Hyundai Engineering & Construction," adding, "Especially, the rising brand value of Hyundai Engineering & Construction in the metropolitan area redevelopment projects is an important competitive advantage for securing growth in the domestic construction market."

The overseas business is also showing a positive outlook. It recorded 1.531 trillion KRW on a consolidated basis, an increase of 10.3% compared to the same period last year. This stopped the sales decline that had continued for eight consecutive quarters since the third quarter of 2019. New construction sites such as the Basra oil refinery in Iraq and Panama Metro Line 3, along with the progress of existing large-scale sites like Marjan in Saudi Arabia and Lusail in Qatar, contributed to the growth in overseas sales. If orders such as the southern Philippines railway, Saudi Jafra gas, and Qatar HGH hospital expansion projects become visible within the year, achieving the annual order plan of 6 trillion KRW seems feasible. Shin Young Securities researcher Sera Park forecasted, "The overseas order backlog is expected to reach a combined 28 trillion KRW by the end of this year," adding, "Based on this abundant order backlog, overseas sales will increase in the fourth quarter of this year and next year, driving overall growth."

Although there are concerns about stock price discounts due to the planned listing of Hyundai Engineering, in which Hyundai Engineering & Construction holds a 38.6% stake, the securities industry views the growth momentum as sufficient. Attention was especially drawn to the fact that growth drivers are being established in the renewable energy sector through nuclear and wind power. Cape Investment & Securities researcher Misong Kim said, "The government plans to build a 12-gigawatt offshore wind power plant to increase the share of renewable energy, and Hyundai Engineering & Construction will lead the market by occupying 25% of this," adding, "Nuclear power is also positive as they are preparing for overseas orders together with Korea Hydro & Nuclear Power."