[Click eStock] "Hyosung Heavy Industries, Temporary Earnings Slump... 2Q Recovery Expected"

[Asia Economy Reporter Lee Jung-yoon] Hana Financial Investment maintained a buy rating and a target price of 84,000 KRW for Hyosung Heavy Industries on the 2nd, stating that although the company's first-quarter earnings this year fell short of market consensus (estimates), orders, which determine the future direction of operating performance, showed a solid trend.

Hyosung Heavy Industries recorded sales of 599.5 billion KRW in the first quarter of this year, an increase of 2.8% compared to the previous year. The heavy industry division experienced some sales deferral due to the impact of Omicron, and its scale decreased due to a decline in the operating rate of overseas subsidiaries. The construction division saw a decrease in sales compared to the previous quarter due to delays in some site commencements, but sales increased compared to the previous year.

Hyosung Heavy Industries posted an operating loss of 4.8 billion KRW in the first quarter of this year, turning to a deficit compared to the previous year. Yoo Jae-sun, a researcher at Hana Financial Investment, explained, "The heavy industry division recorded a loss due to fixed cost burdens following a decrease in sales performance. However, this is considered a temporary phenomenon, and as the scale recovers in the future, profit margins are expected to rise to a normal level. The construction division maintained profit margins through cost improvement activities despite rising raw material prices."

Hyosung Heavy Industries is expected to normalize its performance from the second quarter of this year. Researcher Yoo said, "Not only domestic but also overseas orders are improving, increasing the visibility of performance improvement in the heavy industry division. Orders for ultra-high voltage transformer circuit breakers continue in regions such as Europe and the Middle East, while supply contracts for energy storage system (ESS) solutions are being made in the UK and South Africa."

He added, "Considering this year's new hydrogen charging station construction plans and the normalization of operations at the U.S. subsidiary, the profit contribution of the heavy industry division is expected to gradually increase. Certification procedures for the wind turbine production plant are scheduled to be completed within the year, which could quickly lead to entry into domestic and overseas wind power markets."