On the 22nd, Hyundai E&C recorded an operating loss of more than 1.2 trillion won last year, leading the financial investment industry to interpret it as a result of the will reflected by the Hyundai Motor Group. The reason for Hyundai E&C recording a unit-based operating loss was that Hyundai Engineering, in which it holds a 38.62% equity stake (by the end of September 2024), reflected an operating loss of 1.4 trillion won in the fourth quarter alone. The direct impact on the deterioration of Hyundai E&C's performance was due to the so-called Big Bath, carried out after the appointment of Ju Woo-jung as CEO of Hyundai Engineering in November last year.
According to the Financial Supervisory Service, Hyundai E&C disclosed its annual results for the previous year, reporting an operating loss of 1.2208 trillion won and a net loss of 736.381 billion won. It also revealed through an official notice that the reason for shifting to a deficit last year, after reporting an operating profit of 785 billion won in 2023, was due to its subsidiary Hyundai Engineering.
Hyundai Engineering had previously attempted an initial public offering (IPO) in 2021-2022 but withdrew after failing to gauge investor demand. The failure stemmed from the high proportion of existing share sales. Existing share sale refers to the sale of stocks already held by current shareholders to investors in an IPO. At that time, Hyundai Engineering structured its IPO with 25% new shares (4 million shares) and 75% existing shares (12 million shares), which included 5.34 million shares held by Chung Euisun, Chairman of Hyundai Motor Group, and 1.42 million shares held by Honorary Chairman Chung Mong-koo. This led to criticism in the market that the IPO was for the purpose of cashing out the Hyundai Motor Group's owner family.
In this situation, the market interprets Ju's choice to undergo a Big Bath immediately upon his appointment as a signal that Hyundai Engineering will not pursue an IPO for the next 1-2 years. Ultimately, it shows the intention to solidify the foundation and seek market evaluation after preparation rather than hastily pushing for an IPO to sell existing shares. Analysts believe that because the IPO involves the equities of Chairman Chung Euisun and Honorary Chairman Chung Mong-koo, it is not solely Ju's decision but reflects the will of the Hyundai Motor Group.
According to the financial investment industry, although Hyundai E&C's annual operating loss last year was 1.2208 trillion won, in the fourth quarter alone, Hyundai Engineering's operating loss stood at 1.4 trillion won, while Hyundai E&C's operating loss was about 360 billion won. This indicates that approximately 1.76 trillion won in losses occurred between the two companies in the fourth quarter. Consequently, Hyundai E&C, which had maintained profitability until the third quarter, has now shifted to a deficit.
Particularly noteworthy is Hyundai E&C's 'profit from continuing operations before income taxes.'
On a consolidation basis, it resulted in a loss of 942.429 billion won last year. Considering the scale of Hyundai Engineering's operating loss, it also means that Hyundai Engineering cannot report a profit from continuing operations before income taxes based on its own standards last year. According to the Korea Exchange's listing regulations for securities markets, to be eligible for listing, it must meet two conditions: the profit from continuing operations before income taxes for the most recent business year must exceed 3 billion won, and the total profit from continuing operations before income taxes for the last three business years must exceed 6 billion won. Ultimately, Hyundai Engineering has become unable to go public this year.
A source from the financial investment industry noted, 'The Big Bath in engineering after Ju's appointment in the fourth quarter is the biggest reason for the shift to a loss,' adding, 'The fact that Hyundai Engineering performed this degree of a Big Bath in a single quarter ultimately suggests the intention of the group to enhance its profit-generating capacity without going public for the time being.' He also mentioned, 'The likelihood of reflecting additional losses has significantly decreased, so it will likely have a positive impact on Hyundai E&C's stock price going forward.'
Kim Ki-joo, CEO of KPI Investment Advisory, also stated, 'This expresses the intention not to go public for at least 1-2 years in the future,' and added, 'It can now be interpreted that they are preparing to start from scratch again after shaking off the losses.' CEO Kim remarked, 'By choosing not to shake off losses and rashly going public, they demonstrate management's determination not to create a situation where stock prices decline post-IPO.'
An important point of focus is why Ju made such a choice. Ju is known to be the top financial expert within the Hyundai Motor Group and enjoys the strong trust of Chairman Chung Euisun. Ju was appointed as Kia's head of finance (executive director) at the end of 2018, when Chairman Chung began overseeing group management as Vice Chairman, contributing to Kia's performance improvement. Ju's decision to switch to a deficit has temporarily halted Hyundai Engineering's IPO, and the market largely views that Ju cannot unilaterally decide to suspend the IPO potentially involving equities held by Chairman Chung Euisun and Honorary Chairman Chung Mong-koo.
An industry insider remarked, 'A professional manager with a term cannot independently decide on the listing of an affiliate tied to the existing share sales of the family.' He concluded that 'Ultimately, the Big Bath and the shift to a deficit is likely to be a decision at the level of the Hyundai Motor Group.'