[Click eStock] "Hyundai Construction, Dual Drive of Domestic and Overseas Orders... Increased Performance Visibility"

[Asia Economy Reporter Kwon Jae-hee] Hana Financial Investment maintained its 'Buy' rating and target price of 63,000 KRW for Hyundai Construction on the 25th. Although the first-quarter performance was somewhat sluggish, the visibility of earnings is expected to gradually improve.

Hyundai Construction's first-quarter results (consolidated basis) showed sales of 4.15 trillion KRW and operating profit of 171.5 billion KRW, down 0.1% and 15% respectively compared to the same period last year. On a separate basis, sales recorded 2.4 trillion KRW, a 5% increase year-on-year, due to a 60% growth in overseas sales despite a 12% decline in domestic sales.

The main cause of the sales slump appears to be the completion of large projects such as the Heavy Oil Hydrocracking Complex (HPC) plant and Gaepo 8th Complex. In terms of profitability, the gross profit margin fell to 9% due to delays in the final settlement of the HPC project and temporary cost increases in the Daegok-Sosa civil engineering project. Hyundai Engineering also recorded an operating profit of 57.6 billion KRW, down 44% year-on-year, due to sluggish sales following the completion of large projects.

Despite the first-quarter performance setback, the outlook is that earnings visibility will gradually improve, supported by the achievement rate of order targets. New orders on a consolidated basis in the first quarter reached 8.9 trillion KRW, achieving 32% of the annual target. Domestic new orders surged to 4.7 trillion KRW. New housing sales amounted to 8,720 units, with 8,948 units (on a separate basis) scheduled for the second quarter. Based on this, the annual target of 30,405 units is considered achievable. Overseas orders in the first quarter were only 1.1 trillion KRW, achieving 11% of the target, but projects such as the Philippines North-South Railway, Qatar LNG, Qatar petrochemical, Uzbekistan combined power plant, and Singapore hospital complex development are planned, so overseas orders are expected to expand in the second half. Accordingly, second-quarter operating profit is estimated at around 228.2 billion KRW.

Seo Hyun-jung, a researcher at Hana Financial Investment, said, "Although rising raw material prices are considered a factor of earnings uncertainty, as confirmed in the first-quarter results, the impact may be more limited than feared. Above all, as seen in the strong housing orders and sales performance, considering the robust housing orders and the full-scale start of overseas sales, earnings visibility is expected to gradually improve."

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