[Click eStock] "Hyundai Heavy Industries Holdings, a chance for value reassessment through subsidiary stake sale"

Increase in Hyundai Global Service's Corporate Value with Stake Sale
Not Properly Reflected in Last Year's Books... Undervalued at PBR 0.4x

[Asia Economy Reporter Minwoo Lee] Hyundai Heavy Industries Holdings has sold its stake in Hyundai Global Service, which continued the after-sales service (A/S) business for shipbuilding, engines, and other sectors. This move is seen as a way to secure investment funds for new businesses outside of shipbuilding, prompting analyses that a revaluation of its worth is necessary.

On the 24th, Meritz Securities analyzed that this sale presents an opportunity to reassess the value of Hyundai Heavy Industries Holdings. Hyundai Heavy Industries Holdings signed a contract to sell 38% (1.52 million shares) of Hyundai Global Service, a wholly owned subsidiary, to KKR, the largest private equity firm in the U.S., for 646 billion KRW. Additionally, it received 150 billion KRW in cash held by Hyundai Global Service as dividends, securing approximately 800 billion KRW in funds. KKR is reported to have valued Hyundai Global Service at around 2 trillion KRW, reflecting its recent growth.

Hyundai Global Service, established in 2016 during the spin-off of Hyundai Heavy Industries, started as a company specializing in after-sales service for ship equipment and has taken on eco-friendly ship retrofitting and ship digitalization. Recently, it expanded into the smart ship platform business. Last year, it recorded sales of 1.009 trillion KRW and an operating profit of 156.6 billion KRW, increasing by 24.8% and 44.3% respectively compared to the previous year. It surpassed 1 trillion KRW in sales within five years of its launch.

Researcher Kim Hyun of Meritz Securities explained, "In addition to the International Maritime Organization's sulfur oxide regulations implemented since last year, additional regulations to reduce carbon emissions have been established, sustaining demand for eco-friendly investments in the shipbuilding and shipping industries. This sale is considered a pre-IPO transaction, with the company's value estimated at a price-to-earnings ratio (PER) of about 18 times based on last year's figures."

Hyundai Heavy Industries Holdings announced that the funds secured from this sale will be used as investment capital for new businesses. In its Q4 earnings report last year, it stated that it is exploring new growth engines and researching the commercialization of energy-saving devices in response to strengthened greenhouse gas (GHG) regulations. Furthermore, having signed a contract on the 5th to acquire management rights of Doosan Heavy Industries & Construction and Doosan Infracore for 850 billion KRW, securing investment funds for non-shipbuilding sectors was necessary.

Meritz Securities analyzed that Hyundai Heavy Industries Holdings is significantly undervalued. Previously, in 2019, Hyundai Heavy Industries Holdings raised about 1.37 trillion KRW (reflecting an enterprise value of 8.06 trillion KRW) by selling a 17% stake in its subsidiary Hyundai Oilbank to Saudi Aramco. Through this sale of Hyundai Global Service shares, it secured 800 billion KRW (reflecting an enterprise value of 1.94 trillion KRW).

However, as of Q3 last year, the book value of Hyundai Heavy Industries Holdings' 74.13% stake in Hyundai Oilbank was approximately 2.4 trillion KRW, and the book value of its 100% stake in Hyundai Global Service was only 130 billion KRW. The enterprise value reflected in the sale of these two subsidiaries is estimated at about 7.17 trillion KRW based on the remaining shares after the sale, but the combined book value of 2.48 trillion KRW is only about 35% of that.

Researcher Kim said, "Based on the consolidated equity of 11.1 trillion KRW at the end of last year, which does not reflect the subsidiary sales, the current stock price level corresponds to a price-to-book ratio (PBR) of 0.4 times, indicating severe undervaluation. The expansion into new businesses through the subsidiaries' pre-IPO will be the trigger to remove the holding company's discount factor."

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