Korea Investment & Securities said on Oct. 20 that an earnings shock is expected for Hyundai E&C in the third quarter. It lowered its target price to 77,000 won, down 18.9% from 95,000 won. However, it maintained a Buy rating, citing growth potential in the nuclear power business. The previous trading day's closing price of Hyundai E&C was 56,000 won.
Korea Investment & Securities estimated that Hyundai E&C will post consolidated revenue of 7.1627 trillion won and operating profit of 76.4 billion won in the third quarter. Revenue is in line with market consensus, but operating profit is 64.1% below market expectations.
Kang Kyung-tae, an analyst at Korea Investment & Securities, said, "The project owner of the Poland Polimery Police propylene and polypropylene (PDH·PP) site at Hyundai Engineering demanded that financial institutions execute the performance bond (P-Bond)," and noted, "The P-Bond amounts to 170 billion won, and reflecting the subrogation rights of the financial institutions that executed the guarantee, we recognized it as a third-quarter expense (deduction from revenue)."
He added, "Settlement expenses for subcontractors occurred at Hyundai E&C's multifamily housing completion sites," and said, "The amount is about 30 billion won."
As a result, Kang judged that the big bath strategy executed in 2024 did not work.
He said, "We lower this year's consolidated operating profit estimate to 618.5 billion won, 40.6% below the previous estimate, and next year's estimate to 663.8 billion won, 58.1% below the previous estimate," and added, "Expectations for results should be tempered until 2027, when plant profitability normalizes and improvements in building and housing profitability become pronounced."
However, Kang said, "Once the earnings effects are fully wiped clean, news of nuclear power orders will follow," adding, "This applies to both large nuclear plants and small modular reactors (SMRs), and because most of the businesses to come will be collaborations with U.S. reactor designers, we have even greater confidence," while maintaining a Buy investment opinion.