[Market Focus] Hyundai Engineering & Construction Rallies on Expectations of Profitability Improvement Despite Turn to Losses

Hyundai Engineering & Construction is showing strong performance in early trading. Despite having posted significant losses from its overseas operations, securities firms' analyses suggesting future profitability improvements appear to be boosting investor sentiment.

As of 9:15 a.m. on January 23, shares of Hyundai Engineering & Construction are trading at 30,050 won, up 5.62% (1,600 won) from the previous session.

The previous day, Hyundai Engineering & Construction announced in a regulatory filing that its preliminary sales for the fourth quarter of last year fell by 15.4% year-on-year to 7.27 trillion won, and it recorded an operating loss of 1.7 trillion won. The company attributed the turnaround to losses to the unexpectedly high complexity of a refurbishment project in Balikpapan, Indonesia, as well as increased labor costs in the main construction phase due to the refurbishment work.

Lee Eunsang, a researcher at NH Investment & Securities, stated, "The main reason for the operating loss was the recognition of costs at major overseas sites." He predicted that profitability would improve starting this year, as most of the potential costs at these sites have already been reflected in advance.

NH Investment & Securities forecasts that Hyundai Engineering & Construction will return to profitability this year, projecting an annual operating profit of 995 billion won. Lee added, "We expect balanced profitability improvements in both the housing and plant divisions," and explained, "Projects such as the Marjan and Jafurah PKG1 in Saudi Arabia, which started between 2020 and 2021 and have weighed on overseas plant profitability, are scheduled for completion this year, which should improve the business mix." He further noted, "The housing division is also expected to see a marked improvement in business performance due to an increase in post-2023 presale volumes, for which costs were sufficiently factored in at the time of contract."