[Click eStock] "Hyundai Electric's Q4 Loss Is Temporary"

Supreme Court Rules in Favor of Workers in Wage Lawsuit Appeal on the 16th
Daishin Securities Lowers Hyundai Electric Target Price from 29,000 to 26,000 Won

[Asia Economy Reporter Gong Byung-sun] Hyundai Electric's operating profit for the fourth quarter of this year is expected to show a loss. This is due to the one-time reflection of provisions following the defeat in the ordinary wage lawsuit involving Hyundai Heavy Industries Group.

On the 30th, Daishin Securities estimated Hyundai Electric's Q4 sales at 644.6 billion KRW, a 31% increase compared to the same period last year, and an operating loss of 11.6 billion KRW, turning to a deficit during the same period. The market consensus for operating profit was a surplus of 35.4 billion KRW, showing a significant difference.

The sudden reflection of provisions for ordinary wages is expected to negatively impact performance. On the 16th, the Supreme Court ruled in favor of the workers of Hyundai Heavy Industries and Hyundai Mipo Dockyard in the final appeal of the wage lawsuit against the companies. The workers claimed that the companies did not include bonuses in the ordinary wage, resulting in underpayment of statutory allowances and some retirement benefits based on the ordinary wage. The Supreme Court judged that the recalculation of ordinary wages does not necessarily cause a serious management crisis for the companies.

The scale of provisions for the ordinary wage lawsuit that Hyundai Electric must reflect is approximately 50 billion KRW in operating expenses and about 30 billion KRW in non-operating expenses. Excluding this, Hyundai Electric's operating profit would be 38.4 billion KRW, exceeding the consensus by about 8.47%.

Accordingly, Daishin Securities maintained its 'Buy' investment rating for Hyundai Electric but lowered the target price from 29,000 KRW to 26,000 KRW. The closing price on the previous day was 20,200 KRW.

Nevertheless, Daishin Securities analyzes that this loss is temporary and that Hyundai Electric will begin substantial growth from next year. Daishin Securities estimates Hyundai Electric's sales next year to increase by 12% compared to this year to 2 trillion KRW, and operating profit to rise by 185% during the same period to 113.4 billion KRW. Researcher Lee Dong-heon of Daishin Securities explained, “There is no additional impact from ordinary wages,” and “We have also started to reflect orders from the recovering Middle East market and the shipbuilding industry.”