[Click eStock] "China Excavator Peak Out"... Hyundai Construction Equipment Target Price Down 30%

[Asia Economy Reporter Ji Yeon-jin] IBK Investment & Securities announced on the 17th that it has lowered the target price for Hyundai Construction Equipment from the previous 82,000 KRW to 58,000 KRW, citing deteriorated investor sentiment due to the peak-out in the Chinese excavator market and the Evergrande issue.

Lee Sang-hyun, a researcher at IBK Investment & Securities, said, "We expect infrastructure investments in developed countries and recovery in the Indian market to help defend earnings," and added, "Through the intermediate holding company Hyundai Genuine, the business and ownership structures of Hyundai Construction Equipment and Hyundai Doosan Infracore will be changed to create synergy," maintaining a buy investment opinion.

Sales in the fourth quarter of this year are expected to increase by 15.8% year-on-year to 797.2 billion KRW, and operating profit is expected to increase by 48.7% to 18.9 billion KRW. The operating profit margin is forecast to rise by 0.6 percentage points year-on-year to 2.4%. Excluding China, improvements are expected in direct exports, developed countries, and the Indian market.

The researcher said, "It is understood that dealers are accumulating inventory due to infrastructure investment and supply chain issues," and added, "Profitability usually reflects bonuses in the fourth quarter, and although raw material burdens are expected to increase compared to the third quarter, it is expected to improve compared to the same period last year as the impact of impairment losses on development costs decreases."

Next year's annual performance is expected to see sales increase by 1% year-on-year to 3.5637 trillion KRW, operating profit increase by 4.9% to 222.7 billion KRW, and the operating profit margin reach 6.2%.

The company plans to sell its industrial vehicle business, which has different industrial characteristics, to Hyundai Genuine starting January 1 next year, while acquiring shares of overseas production subsidiaries held by Korea Shipbuilding & Offshore Engineering to focus its capabilities on the construction equipment business. Sales in developed countries, which account for about 40% of industrial vehicle sales, will be handled by Hyundai Construction Equipment, and the Brazilian subsidiary will also be consolidated. Demand recovery due to infrastructure investment in developed countries is expected to offset the decline in China. As a result, it is expected that the sale of industrial vehicles will improve the operating profit margin and that profits will expand through the acquisition of shares in overseas subsidiaries.