[Click eStock] Investment Points in Hyundai Engineering & Construction Found in the Growth of Hyundai Steel Industry

[Asia Economy Reporter Lee Seon-ae] Korea Investment & Securities announced on the 16th that it maintains a buy rating and a target price of 67,000 KRW for Hyundai Engineering & Construction.

Researcher Kang Kyung-tae of Korea Investment & Securities said, "While construction companies have recently been emphasizing eco-friendly energy plant-related businesses, Hyundai Engineering & Construction is also standing out in small modular reactors (SMR) and offshore wind power," adding, "Compared to the small modular reactors agreed to be developed with Holtec (a US company designing 160MW output SMRs based on pressurized water reactors), the offshore wind EPC by Hyundai Steel Industry, which will realize profits earlier, will serve as a key investment point for the parent company Hyundai Engineering & Construction."

Hyundai Steel Industry is a 100% subsidiary of Hyundai Engineering & Construction, engaged in the production of architectural and plant steel structures, offshore wind power substructures EPC, and manufacturing and leasing of heavy equipment such as barges. It operates three production bases domestically, located in Gwangyang Yulchon Industrial Complex, Cheonan, and another site.

The core product manufactured at the Yulchon plant is the jacket-type offshore wind power substructure. The Yulchon plant can produce or assemble 80,000 tons of steel structures annually and also has a loading dock that allows direct shipment of products from the yard.

Offshore wind power construction separates the procurement of topside and substructure, with the substructure contractor responsible for installing the topside as well. The construction cost for a 100MWh offshore wind power facility is 550 billion KRW, with about 190 billion KRW (35%) spent on manufacturing and installing the substructure. Hyundai Steel Industry is the leading domestic EPC company for offshore wind substructures, producing substructures for 29 out of 30 offshore wind power facilities installed in Korea, including 10 units of 30MWh Jeju Tamna offshore wind power and 19 units of 60MWh Jeonbuk Southwestern demonstration complex.

They have signed a contract to supply 368MWh and 46 units of substructures for the first phase of 900MWh out of the total 2.4GWh Changhua offshore wind farm in Taiwan, ordered by the Danish state-owned company Ørsted, and have completed production and are currently awaiting shipment at the yard.

The offshore wind projects expected to be secured from 2022 to 2025 total 1.95GW. Converted into the number of turbines, this is 230 units, and considering the proportion of substructures and EPC, the estimated construction cost is about 3.7 trillion KRW.

Researcher Kang said, "Assuming new orders secured by 2023 amount to 1 trillion KRW, with a sales realization period of four years and a uniform progress rate each year during that period, offshore wind EPC sales are expected to generate over 250 billion KRW annually from 2023, with an operating profit margin of 15% and a net profit margin in the high single digits," adding, "Although the steel structure division has continued to operate at a loss, profitability is expected to recover as offshore wind increases its share in total steel structure division sales compared to traditional steel structures."

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