HDC Hyundai Development Company Easily Achieves Annual Operating Profit of 500 Billion Won, Asiana Airlines Acquisition Poses a Variable

1Q Solid Performance... Strong Fundamentals
Asiana Airlines Acquisition is Key... Stock Price May Surge if Withdrawn

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] HDC Hyundai Development Company is expected to achieve operating profits in the 500 billion KRW range this year as well, following last year. Despite the economic slowdown caused by the novel coronavirus (COVID-19), the analysis suggests stable performance, with first-quarter results exceeding market consensus. Therefore, the stock price trend is anticipated to depend on the outcome of the Asiana Airlines acquisition.

According to Meritz Securities on the 2nd, HDC Hyundai Development Company recorded sales of 1.0067 trillion KRW and operating profit of 137.3 billion KRW in the first quarter of this year. Compared to the same period last year, sales increased by 14.3% and operating profit by 35.3%. These figures significantly surpassed market expectations of 868.1 billion KRW in sales and 91 billion KRW in operating profit.

Showing better performance compared to other industries, it appears to have somewhat avoided the impact of COVID-19. Due to these strong results, the stock price closed at 18,850 KRW, up 7.1% from the previous trading day. Nevertheless, analysis suggests it remains undervalued. Hyungryul Park, a researcher at Meritz Securities, stated, "The market capitalization of HDC Hyundai Development Company is only about 1.2 trillion KRW, and considering net cash of 800 billion KRW, the stock price is judged to have fallen to an extreme level. In particular, they plan to supply 17,000 housing units this year, which is a significant increase from last year, and if the Kwangwoon University project begins in the second half of the year, additional profit growth is expected."

There is an assessment that there are no issues with the core business profits and fundamental strength. Ultimately, the direction of the stock price this year is analyzed to be determined by whether the Asiana Airlines acquisition proceeds. HDC Hyundai Development Company decided in November last year to acquire Asiana Airlines for about 2.5 trillion KRW. However, as airlines are incurring massive losses due to COVID-19, there have been continuous criticisms that the price is excessively high compared to the appropriate value. Accordingly, on the 29th of last month, they announced that the originally scheduled stock acquisition date of Asiana Airlines on the 30th would be postponed to "the day after 10 days have passed from the date all conditions precedent to closing the transaction are met or a date agreed upon by the parties." In the industry, since the future stock acquisition date was not specified, opinions are emerging that this means an "indefinite postponement."

Researcher Park pointed out, "If the Asiana Airlines acquisition is canceled, even considering the cost processing including the deposit, the stock price could surge. On the other hand, if the acquisition is confirmed, despite government support for the airline industry, increased borrowings, slow recovery of airline demand, lease liabilities, and burdens related to asset-backed securities (ABS) are likely to reduce the operating value of the parent company." Accordingly, Meritz Securities has given HDC Hyundai Development Company a 'neutral' investment opinion with a target price of 20,000 KRW.

This content was produced with the assistance of AI translation services.