[Click eStock] "Hyundai Construction Resumes 1Q Overseas Orders... Expectations for Stock Price and Performance Differentiation"

[Asia Economy Reporter Kwon Jaehee] Shinhan Investment Corp. maintained its 'Buy' rating and target price of 52,000 KRW for Hyundai Engineering & Construction on the 16th.

Hyundai Engineering & Construction's consolidated sales for the fourth quarter of last year are expected to be 5.8 trillion KRW, with an operating profit of 143.4 billion KRW, which is 16.4% below market expectations based on operating profit. This is interpreted as a result of one-time costs reflected due to cost rate adjustments at domestic and overseas sites, characteristic of the fourth quarter.

Researcher Kim Sunmi of Shinhan Investment Corp. analyzed, "Although the fourth-quarter performance is disappointing, the cost rate adjustments will not affect performance from 2023 onwards, and the profitability of the housing and construction sectors is similar to that of the third quarter. Since housing pre-sales expansion began in earnest from 2021 and the proportion of self-developed projects is relatively low, the volatility in housing sector profitability is expected to be smaller compared to competitors, which is positive."

Hyundai Engineering & Construction successfully achieved its initial supply target by pre-selling 29,500 housing units in 2022. This was due to the effect of converting contracts secured at the beginning of the year into new pre-sales. The supply target for 2023 is 21,000 units. Accordingly, Hyundai Engineering & Construction's housing sales are expected to continue growing until 2024.

In addition to the impact of rising raw material and outsourcing costs, the increasing proportion of urban renewal projects is expected to cause some sluggishness in housing sector profitability this year. However, Hyundai Engineering & Construction plans to proceed with quasi-self-developed projects (such as Emart in Gayang-dong and Crown Hotel in Itaewon) in the second half of this year, which is expected to lead to faster profitability improvement compared to competitors.

Researcher Kim said, "Although the housing sector will slow down this year, overseas plant and civil engineering sectors will expand, helping to defend performance, highlighting the strengths of Hyundai Engineering & Construction as a comprehensive construction company. News of overseas orders resuming from the first quarter will act as a trigger for differentiating Hyundai Engineering & Construction's performance and stock price."