[Click eStock] "Hyundai E&C Unavoidable Earnings Downgrade Due to Weak Core Businesses Including Plant Division"

Target Price Lowered to 93,000 Won

Sangsangin Securities announced on October 20 that it has lowered its target price for Hyundai Engineering & Construction to 93,000 won, citing the inevitable downward revision of its second-half performance due to the weak performance of the plant division, including the occurrence of a bond call (contract performance guarantee claim) for the Poland PDH·PP plant. The investment opinion remains 'Buy'.

Kim Jinbeom, a researcher at Sangsangin Securities, stated, "Hyundai Engineering & Construction's third-quarter operating profit is expected to be 65.4 billion won, down 44.8% year-on-year and below the market consensus of 82.7 billion won." He explained, "A bond call loss of approximately 170 billion won incurred at the Poland Polimery Police plant site will be reflected in Hyundai Engineering's results and is expected to significantly undermine the company's overall operating profit." However, he noted that a profit improvement factor of about 40 billion won is expected to partially offset the loss shock. In addition, he predicted that the plant division's poor performance would continue due to construction period extensions and claim deferrals at the Jafurah and Marjan projects.

In the housing and construction division, the gross profit margin (GPM) was revised downward to 4.9% due to the reflection of settlement losses at the Pohang Hwanho Park project. Kim also explained, "There is a possibility of additional costs, such as a bond call for the Edra Energy coal-fired power plant in Malaysia in the fourth quarter, so we are lowering our annual operating profit estimate to around 606 billion won."

He added, "Despite reflecting a large-scale loss (big bath) of 1.4 trillion won in the fourth quarter of last year, residual cost uncertainties continue to weigh on the stock price. Short-term stock price recovery will likely depend on securing predictability in performance for the second half of the year and next year." However, he assessed that structural improvement in the company's core business is expected to continue from a mid- to long-term perspective.

He also pointed out that the company's mid- to long-term growth potential as a global nuclear power EPC remains valid. Kim emphasized, "This is still a noteworthy investment point," and added, "When considering the upside, it is important to focus on mid- to long-term growth drivers rather than short-term concerns."

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