Samsung Securities on May 8 said HD Hyundai Heavy Industries has various upside momentum, including a stable cost structure, expectations for improved profitability, and order wins. It kept its investment rating at "Buy" and raised the target price to 1.03 million won from 890,000 won. The previous trading day's closing price of HD Hyundai Heavy Industries was 693,000 won.
HD Hyundai Heavy Industries posted results in the first quarter that beat market expectations. The company said the consolidated revenue was 5.9163 trillion won and operating profit was 905.4 billion won, according to a filing the previous day. Revenue rose 54.8% from a year earlier, and operating profit increased 108.8%. Revenue was in line with the securities consensus (average forecast), while operating profit exceeded the consensus by 13.6%. The operating margin was 15.3%, up 4 percentage points from a year earlier.
Han Young-su, an analyst at Samsung Securities, said, "The company explained that no special one-off gains were reflected, and instead it factored in this year's expected performance bonuses more conservatively than in the first quarter," and added, "Given the higher-than-expected share of FX hedging, the first-quarter results were effectively a positive surprise."
It is positive that profitability in the merchant ship institutional sector improved even with the impact of the HD Hyundai Mipo merger reflected. Previously, some investors had been concerned that the merger with HD Hyundai Mipo would bring in revenue from mid-sized, lower value-added ships, potentially slowing the companywide margin.
The offshore business also saw revenue and profit surge sharply from a year earlier as construction on key projects moved into full swing, and the engine division's operating margin improved.
Han said, "The first-quarter results proved the company's superior cost structure," and noted, "Further profitability improvement is expected as revenue recognition from high-priced orders expands going forward."
The company's net cash stood at 3.7 trillion won at the end of the first quarter. In addition, if the sale of the Gunsan shipyard is completed, additional cash inflows are expected.
Order intake is also solid. The company is estimated to have secured 60% of last year's full-year new orders so far this year. In the engine institutional sector, it has also won orders for power generation engines for North American data centers.
Han said, "Given the high valuations (price levels relative to earnings) of power generation engine manufacturers, a positive effect on the share price is expected," adding, "In addition, rising demand for power generation engines means supply for marine engines will become even tighter, which could lead to higher selling prices."