BNK Investment & Securities on the 23rd said HD Hyundai increased its affiliates' quarterly dividends and is expected to show a solid earnings trend on the back of favorable conditions at key affiliates. It initiated coverage with a "buy" rating and a target price of 350,000 won. The previous session's closing price was 224,000 won.
BNK Investment & Securities analyzed that HD Hyundai's first-quarter standalone revenue this year rose 33.6% on-year to 337.3 billion won as dividends revenue increased. First-quarter standalone operating profit and net profit also climbed 35.4% and 28.5%, respectively, to 353 billion won and 336 billion won.
HD Hyundai streamlined its governance by consolidating affiliates last year. In December, HD Hyundai Heavy Industries absorbed HD Hyundai Mipo, and a month later HD Hyundai Construction Equipment absorbed HD Hyundai Infracore. HD Hyundai also acquired additional equity in HD Hyundai XiteSolution, which controls the construction equipment business, making it a 100% wholly owned subsidiary.
Kim Jang-won, an analyst at BNK Investment & Securities, said, "Consolidation results reflect affiliates' earnings as subsidiaries or under the equity method, and most of HD Hyundai's key affiliates are consolidated subsidiaries, so figures are combined from revenue through to net profit," adding, "The outcome of consolidated results is the affiliates' dividends, and the holding company's dividends received from affiliates form the basis of standalone results, so an improvement in consolidated results raises expectations for the following year's standalone results."
Kim assessed that it is uncertain whether Hyundai Oilbank, which is sensitive to the crude price variable, will continue its strong first-quarter performance.
However, Kim said other affiliates are expected to continue strong results thanks to quality orders and productivity gains, increasing the pool for dividends, improving standalone results, and boosting the holding company's dividend capacity. Shipbuilding and offshore and energy, which account for most of the revenue, are seen to sustain profitability improvements and growth.
Kim said, "Excluding Oilbank, the remaining affiliates are highly likely to continue benefiting from revenue improvement," adding, "The capacity to expand shareholder returns is expected to grow."
Kim said HD Marine Solution, which pays quarterly dividends, raised its first-quarter dividend by 28.6% on-year, and HD Hyundai Electric, which begins quarterly dividends this year, set it at 1,300 won; considering the sustainability of quarterly dividends, the interim dividend is expected to increase 36.8% from the previous year's interim level.