[Click eStock] Hyundai Engineering & Construction Hits 'Legoland', 3Q Earnings Drag... Target Price 'Downgraded'

[Asia Economy Reporter Ji Yeon-jin] Hyundai Engineering & Construction has announced third-quarter results that fell short of market expectations this year, leading to successive downward revisions of its target stock price. The default incident at Legoland in Gangwon Province also contributed to a significant contraction in investor sentiment toward construction companies with a high housing proportion.

On the 27th, Korea Investment & Securities maintained a buy rating on Hyundai Engineering & Construction but lowered the target price by 18.2% to 45,000 KRW. Since last month, when concerns over real estate project financing (PF) began to intensify, the company's value has dropped by 29.46% up to the previous day.

Hyundai Engineering & Construction reported consolidated third-quarter sales of 5.4 trillion KRW, a 24.8% increase compared to the same period last year, but operating profit fell by 30.2% to 153.8 billion KRW. While sales exceeded market expectations by 9.1%, operating profit was 22.8% below forecasts. This was attributed to a 30 billion KRW cost increase related to domestic logistics center construction and Hyundai Engineering's poor performance, resulting in operating profit below expectations.

On a standalone basis, Hyundai Engineering & Construction supplied 21,619 housing units by the third quarter out of its annual target of 30,000 units, and it is expected to supply 27,000 units next year. Kang Kyung-tae, a researcher at Korea Investment & Securities, stated, "Out of the annual overseas order target of 5.6 trillion KRW, 2.7 trillion KRW in orders were secured cumulatively by the third quarter," adding, "As the Saudi NEOM new city project moves past the foundational construction phase into the full-scale main construction project ordering phase, mid- to long-term benefits are expected."

On the same day, Ebest Investment & Securities also lowered Hyundai Engineering & Construction's target price by 16.7%, from 60,000 KRW to 50,000 KRW. The downgrade was due to lowered profit estimates following an increase in Hyundai Engineering's cost ratio and a downturn in the real estate market. However, Kim Se-ryeon, a researcher at Ebest Investment & Securities, said, "Short-term achievements in overseas orders such as the $1.5 billion Saudi Ma’aden petrochemical project, the $1 billion Qatar petrochemical project, and negotiated contracts related to Saudi Aramco NEC have been confirmed, and long-term expectations for overseas nuclear power exports and the Saudi NEOM new city orders are anticipated to act as long-term stock momentum, so we maintain our recommendation as a second-preferred stock within the sector."

On the same day, Samsung Securities and Meritz Securities also lowered their target prices by 11% and 15.25%, respectively, to 49,000 KRW and 50,000 KRW. Moon Kyung-won, a researcher at Meritz Securities, said, "Following the Legoland incident, concerns about real estate project financing (PF) contingent liabilities have increased due to tightening liquidity," adding, "Although these concerns are reasonable, considering that the portion of PF payment guarantees maturing within 2023 out of the approximately 2.3 trillion KRW PF guarantee scale is limited, and the liquidity strength based on net cash of about 3 trillion KRW, the recent stock price decline is excessive."

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