[Click eStock] "Hyundai Construction, Structurally Slow Profitability Improvement... Target Price Down"

Shinhan Investment Corp. on the 24th downgraded the target price of Hyundai Engineering & Construction from 49,000 KRW to 46,000 KRW, citing structurally slow profitability improvement. The investment rating was maintained at 'Buy.'

Seonmi Kim, a researcher at Shinhan Investment Corp., said, "The target price was lowered to reflect the downward revision of earnings estimates," adding, "Until confidence in profitability is restored, growth in scale (orders) will not be a factor for stock price recovery, so it is necessary to wait patiently for the results of new businesses."

Hyundai Engineering & Construction's Q4 earnings last year recorded sales of 8.6 trillion KRW, up 41.3% year-on-year, and operating profit of 145.5 billion KRW, up 94.5%, falling 24% short of the lowered consensus (average securities firm forecast) based on operating profit. Researcher Kim explained, "Although high sales growth continued mainly in housing and plants, about 50 billion KRW in additional overseas costs (litigation and arbitration settlement costs) and an overall increase in domestic cost ratios caused the poor performance."

Although profitability improvement is structurally slow, absolute profit is expected to improve steadily through scale growth. Researcher Kim analyzed, "Despite favorable order performance, slow profitability is believed to be due to the impact of expanded sales during the raw material price surge in 2020-2021, reduced influence of specific business unit performance improvement under a diversified business structure, and reduced profitability gaps by site due to risk management. Therefore, this year’s overall profitability improvement will be lower than expected, but the absolute profit scale will improve steadily due to scale growth."

She emphasized that the mid- to long-term direction is more important than short-term performance. Researcher Kim said, "This year, Hyundai Engineering & Construction’s investment point will be whether there is a mid- to long-term directional shift rather than earnings. As operating cash flow improves through collection of move-in payments, new investments such as technology acquisition and development projects are expected to expand. The progress of currently pursued new businesses such as small modular reactor (SMR) exports, offshore wind power development, and power brokerage business based on the group will alleviate disappointment over slow earnings improvement."

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