Hyundai Elevator is the dominant player in the domestic elevator industry, but it struggles to make its mark in the global market and in the high-speed elevator sector, leading to dissatisfaction among investors. Factors such as management disputes or the inter-Korean economic cooperation themes have historically affected the company's stock price more than its core business.
Hyundai Elevator noted in its value-up public announcement at the end of last year that it would strengthen shareholder returns based on securing profitability. Investors' concerns stem from this point. With slow progress in developing overseas markets and high-revenue businesses, there are questions about whether it can maintain its high dividend policy. There is also worry that focusing solely on the domestic market amid fears of low birth rates could lead to the company's decline.
According to the Korea Exchange's corporate announcement information system (KIND), listed company Hyundai Elevator announced in its value-up plan on Dec. 12 last year that it aims to achieve a return on equity (ROE) of 15% and a shareholder return rate of 50% by 2027. The company plans to improve its ROE by securing business profitability and increase its price-to-earnings ratio (PER) through shareholder return policies, thereby boosting its price-to-book ratio (PBR) twofold.
Hyundai Elevator has been regarded as a representative high-dividend stock even prior to its value-up announcement. It significantly expanded its dividend scale when it appointed Im Yu-cheol, CEO of H&Q Korea, as a new outside director in December 2023. Last March, Hyundai Elevator decided to pay 4,000 won per share in dividends, totaling 144.4 billion won, which was more than seven times larger than the previous year. In one year, the market dividend rate increased from 1.7% to 8.8%, and the dividend payout ratio compared to consolidated net profit rose from 25% to 45%.
In the value-up announcement, Hyundai Elevator stated regarding securing business profitability that it plans to increase margins per unit in its core domestic elevator sector and focus on the growing maintenance business. Domestic demand for elevator maintenance is expected to rise from 786,000 units in 2023 to 867,000 units by 2027. Hyundai Elevator also mentioned that it aims to continuously win projects from Korean construction companies overseas and achieve profitability turnarounds in the large and high-speed elevator sectors.
There are no specific comments regarding the domestic elevator business. Investors are particularly uneasy about the overseas business aspect. Hyundai Elevator has consistently expressed its ambition to increase its export ratio since the early 2000s. However, the export ratio, which was around 15% of total sales in 2013, has not significantly changed. This contrasts with global elevator companies like Otis, which earns about 80% of its total sales from overseas markets, and Schindler and Thyssenkrupp, both achieving over 70% abroad.
To secure competitiveness in overseas markets, establishing local corporations and expanding its sales network are essential. However, Hyundai Elevator operates local organizations only in a limited manner in certain countries, including China. This is in stark contrast to Otis, which has entered about 200 countries worldwide, as well as Schindler and Thyssenkrupp, which operate in over 100 countries each. A source from an asset management firm stated, "Hyundai Elevator could pursue mergers and acquisitions (M&A) strategies like Schindler, which acquired Central Elevator to enter the Korean market, or Otis, which increased its domestic market share by acquiring the elevator sector of LG Industrial Systems, but it seems to show little interest in this path."
The lack of significant contract history in the highly profitable high-rise elevator sector is also viewed as a hurdle to rising stock prices. While the cost of elevators for typical apartments is around 40 million won each, it is known that high-speed elevators used in skyscrapers sell for over 1 billion won each. Although Hyundai Elevator holds a high market share of over 40% domestically, it has primarily grown by supplying elevators for mid- to low-rise buildings.
The global high-rise elevator market is dominated by foreign companies such as Otis, Thyssenkrupp, and Mitsubishi. Hyundai Elevator lags behind these firms both overseas and domestically. In the past, during the bidding competition for the elevator installation in the 123-story Lotte World Tower in Jamsil, Seoul, Hyundai Elevator lost to Mitsubishi (31 units won) and Otis (30 units won). Although it succeeded in securing over 200 units for the low-rise section, it did not obtain opportunities to gain experience in installing high-rise elevators in Korea.
Experts in the financial investment industry emphasize that Hyundai Elevator should not be content with stable domestic operations to ensure the sustainable implementation of its value-up plan. A fund manager from B asset management said, "Given the expected prolonged downturn in the construction industry, for domestic elevator companies to make a major leap, they need to develop smart elevators for high-rise buildings based on artificial intelligence (AI) and the Internet of Things (IoT) or target high-value elevator markets for specialized buildings such as logistics centers and smart factories," adding that strategies to enter emerging markets like India and Vietnam, which are expected to experience high growth amid the trend of moving away from China, are also necessary.
A senior official at C asset management commented, "Hyundai Elevator faces challenges such as low operating margins compared to major global players, high ROE volatility, and a lack of long-term strategies for its core business," noting that securing high-rise elevator contracts and expanding into overseas markets are essential. Another fund manager stated, "If it increases its corporate value through overseas expansion, the risk of being exposed to hostile M&A will decrease."