[Click eStock] "Hyundai Construction Target Price Raised from 50,000 to 53,000 Won"

Hi Investment & Securities raised the target price of Hyundai Engineering & Construction to 53,000 KRW on the 24th. In the first quarter on a consolidated basis, Hyundai Engineering & Construction recorded sales of 6 trillion KRW and an operating profit of 173.5 billion KRW. Both Hyundai Engineering & Construction and Hyundai Engineering saw significant increases in sales due to growth in the housing sector. Profitability slightly deteriorated due to some one-time costs in the housing sector.

They expect overseas orders to gain momentum starting from the second quarter. Orders for the Saudi Amiral petrochemical plant and the NEOM City CBT are expected to be secured in the short term. Among these, the Amiral project is known to be a strong candidate for Hyundai Engineering & Construction. The NEOM City CBT project consists of three phases, and if the first phase order is successful, additional orders for two projects in CBT are expected in the second half of the year. In addition, there are various pipelines such as Qatar LNG, UAE LNG, and Australia transmission and transformation projects.

Although contracts for construction cost adjustments due to rising material costs are continuously being signed with the developers, the risk related to cost ratio adjustments has not yet been completely eliminated. Hyundai Engineering & Construction’s standalone 2023 OPM was lowered by 0.5 percentage points compared to the previous forecast. However, due to significant sales from an average of 25,000 housing units sold annually over the past three years, the standalone annual expected operating profit was raised by 6.7% compared to the previous estimate.

In the case of Hyundai Engineering, although the cost ratio at overseas plant sites appears to be unstable, annual operating profit is expected to improve significantly to 250.5 billion KRW compared to the previous year, supported by increased sales in the housing sector and Hyundai Motor Group’s North American factories. On a consolidated basis, Hyundai Engineering & Construction’s 2023 sales and operating profit are projected to be 24.8 trillion KRW and 827.9 billion KRW, respectively.

Hyundai Engineering & Construction’s housing supply volume in the first quarter was sluggish. On a consolidated basis, 2,365 units were supplied, with 794 units standalone and 1,571 units by Hyundai Engineering. This corresponds to 3.5% and 14.8% of the annual guidance of 20,803 units and 10,584 units, respectively. Hyundai Engineering & Construction lowered its annual housing supply target from 20,803 units to 15,000 units, considering the weak subscription sentiment in provincial areas.

The target price was raised from 50,000 KRW to 53,000 KRW. Researcher Bae Se-ho of Hi Investment & Securities said, "We expect overseas order momentum to gain full steam in the second quarter," adding, "Among overseas orders, the NEOM City-related order momentum is expected to be reflected in the stock price, and stable performance is expected to continue this year." Hyundai Engineering & Construction was recommended as the top pick in the construction sector.