[Click eStock] "Hyundai Construction, Largest Annual Sales This Year... Clear Performance Improvement"

[Asia Economy Reporter Kwon Jaehee] Yuanta Securities maintained a buy rating on Hyundai Engineering & Construction on the 27th, citing a base effect from the pre-reflection of overseas potential risks and a record high annual performance in domestic new housing sales this year. However, the target price was revised downward by about 11% from the previous 70,000 KRW to 62,000 KRW, reflecting the construction industry conditions.

Hyundai Engineering & Construction's preliminary consolidated results for the fourth quarter of last year recorded sales of 5.18 trillion KRW and operating profit of 191.3 billion KRW. This represents increases of 19.8% and 112.7%, respectively, compared to the same period last year.

Although a reversal effect of approximately 55 billion KRW related to the Singapore Marina South bond call cost was reflected, the operating profit for this quarter fell short of market expectations by about 9% due to the recognition of unbilled construction amortization costs amounting to 150 billion KRW, including the Mirfa power plant in the United Arab Emirates (UAE), and the deterioration of profit and loss at Hyundai Engineering's Asian power plant sites.

Researcher Kim Giryong of Yuanta Securities analyzed, "The base effect from additional costs (90 billion KRW) in Qatar and Kuwait, along with profit growth from the domestic housing sector and overseas sales exceeding 1 trillion KRW on a separate basis, significantly expanded the year-on-year improvement in operating profit."

Accordingly, the performance improvement this year is expected to be more distinct. Yuanta Securities forecasts Hyundai Engineering & Construction's 2022 performance to reach sales of 19.3 trillion KRW and operating profit of 1.03 trillion KRW, representing increases of 9.5% and 37.2%, respectively, compared to the previous year.

Researcher Kim interpreted, "This will reflect the base effect from pre-reflection of overseas market risks, profit growth following the expansion of housing sales, and the increased sales contribution from large overseas sites expected to have favorable profit margins."

This year, Hyundai Engineering & Construction's new housing sales guidance (on a separate basis) is expected to renew the annual maximum sales record once again with about 30,000 units, including delayed sales from last year, thereby laying the foundation for profit growth in the housing sector.