[Click eStock] "Hanwha, Impact of Financial and Construction Slump... Target Price Down 7%"

Daishin Securities Report

[Asia Economy Reporter Minji Lee] Daishin Securities maintained a buy rating on Hanwha on the 2nd, but lowered the target price by 7% to 40,000 KRW. This reflects the poor performance of the construction and financial sectors, which are consolidated subsidiaries.

Looking at Hanwha's Q1 consolidated results, sales reached 13.144 trillion KRW, and operating profit was 466 billion KRW. Sales increased by 2.4%, but operating profit decreased by 45%. This was due to the underperformance of consolidated subsidiaries such as Hanwha Construction and the financial sector including Hanwha Life.

The separate financial results showed sales of 758.8 billion KRW and operating profit of 28.5 billion KRW, growing by 6.85% and 593% respectively compared to the same period last year. The defense and machinery sectors recorded sales of 386.5 billion KRW and operating profit of 10 billion KRW, growing by 28.6% and turning profitable. The global sector posted sales of 372.3 billion KRW and operating profit of 18.5 billion KRW, with operating profit increasing by 37%. Ji-hwan Yang, a researcher at Daishin Securities, said, “The recovery in sales and operating profit turnaround in the defense and machinery sectors, which were sluggish in Q1, and the global sector’s margin improvement in the chemical division due to rising oil prices contributed to this.”

On the other hand, Hanwha Construction’s performance fell significantly short of expectations due to increased selling and administrative expenses caused by rising raw material and labor costs, as well as sluggish overseas projects. The financial sector, including Hanwha Life, was dragged down by increased bond valuation losses due to rising interest rates. Approximately 90 billion KRW of variable guarantee reserves were reflected due to the stock market decline, resulting in poor performance.

Researcher Ji-hwan Yang explained, “The impact of rising interest rates and stock market downturn continues into Q2. As the recovery of sales at Hanwha Construction’s overseas projects is expected to be delayed, it will be difficult to expect an improvement in performance in the near term.”