LS Securities said on the 10th that Hyundai Engineering & Construction's issuance of 500 billion won in privately placed convertible bonds (CB) will dilute equity value by about 3%. It lowered the target price to 200,000 won from 210,000 won. However, it maintained its Buy rating and its "top pick" call within the construction and nuclear power sector. The previous session's closing price was 122,300 won.
Hyundai Engineering & Construction announced on the 9th that it decided to issue 500 billion won in privately placed CBs maturing on July 7, 2031. The conversion price is 150,607 won, and the number of shares convertible is 3,319,898, equivalent to 2.98% of the total shares outstanding at the end of the period.
Kim Se-ryeon, an analyst at LS Securities, said, "The 500 billion won raised is expected to be used as operating funds related to new energy businesses such as offshore wind, solar power, small modular reactors (SMR), and large nuclear power plants, with 250 billion won to be used this year and 250 billion won next year, respectively," adding, "As of the first quarter of this year, Hyundai Engineering & Construction's net debt is 300 billion won (cash 3.8 trillion won, borrowing fund 4.1 trillion won), and its debt ratio is 157.6%, indicating a sound financial structure compared with the industry average of 200%."
LS Securities said it lowered Hyundai Engineering & Construction's target price by arithmetically reflecting about 3% value dilution from the issuance of convertible bonds.
However, LS Securities judged that valuation merit and upside momentum remain strong. It interpreted this private CB issuance as a strategic decision that signals confidence in the company's growth potential because it is "0% interest-rate funding."
Kim said, "Hyundai Engineering & Construction disclosed that it will issue privately placed CBs with a 0% coupon and 0% yield to maturity," and noted, "It will both deliver a clear message to the market about the company's growth potential and achieve the positive effect of reducing interest expense through a 0% funding rate."
Kim said, "Following the recent pullback in the energy sector, Hyundai Engineering & Construction's forward price-to-book ratio (PBR) has fallen to 1.5 times, which is undervalued compared with the PBR level of at least 2.0 times for global nuclear power and plant engineering, procurement and construction (EPC) peers," adding, "Considering expectations for selection in the U.S. Holtec SMR 300-megawatt (MW) two-unit project, nuclear power orders in Bulgaria, and nuclear power projects as part of investment in the United States, the share price's upside momentum remains intact."