Summary of Hyundai Heavy Industries (009540) Company Update
Core Content Overview
This document provides a detailed analysis and update on Hyundai Heavy Industries (HHI), including its recent financial performance, upcoming rights offering, and investment outlook. The report is authored by Youngsoo Han (Analyst) and Richard Moon (Research Associate) at Samsung Securities, dated December 27, 2017.
Main Points
1. Investment Recommendation and Target Price
- Recommendation: BUY (unchanged despite a revised target price)
- Target Price: KRW144,000 (revised down by 20.4% from the previous KRW181,000)
- Current Price: KRW136,000
- Market Cap: KRW7.7t/USD7.2b
- Shares (float): 56,665,426
- 52-Week High/Low: KRW186,500/KRW117,242
- Avg Daily Trading Value (60-day): KRW30.9b/USD28.8m
2. Key Changes in Estimates
- 2017E EPS: Revised to (2,267) from 3,148
- 2018E EPS: Revised to 331 from 1,749 (a decrease of 81.1%)
- Reasons for revision: Updated guidance and expected proceeds from asset sales.
3. Rights Offering Details
- Size: 12.5 million new shares
- Issue Price: KRW103,000 (a 24% discount to the Dec 26 closing price)
- Proceeds: KRW1.288t
- Purpose: To repay debt and invest in facilities and R&D
- Dilution: 18.1%
- Timing:
- BOD Approval: Dec 26, 2017
- Shareholder Registration Deadline: Feb 2-8, 2018
- Listing of New Shares: Mar 27, 2018
4. Earnings and Order Guidance
- 4Q 2017 Operating Loss: KRW361.8b (due to provisioning for new orders)
- New Shipbuilding Orders (2017 ytd): USD11.417b
- 2018 Target for Shipbuilding Orders: USD13.2b (up 32% from 2017 ytd)
- Assumption: Shipbuilding prices are expected to rise by 10–15%
5. Financial Performance (One-Year Performance)
- HHI Performance:
- 1M: -6.8%
- 6M: -21.6%
- 12M: 5.3%
- Vs Kospi:
- 1M: -2.4%
- 6M: -22.9%
- 12M: -11.6%
6. Parent-Based Net Debt Forecast
- End-3Q Net Debt: KRW1.3t
- Expected Cash Inflow from Asset Disposals: KRW765b
- Land sale: KRW443b
- Subsidiary sales: KRW322b
- Rights Offering Proceeds: KRW1.2t
- Theoretical End-2018 Net Debt: KRW675b (after asset disposals and rights offering)
7. Summary Financial Data (2016–2019E)
| Metric |
2016 |
2017E |
2018E |
2019E |
| Revenue (KRWb) |
23,713 |
15,400 |
13,168 |
14,884 |
| Net Profit (adj) (KRWb) |
(154) |
(128) |
23 |
146 |
| EPS (adj) (KRW) |
(2,713) |
(2,267) |
331 |
2,113 |
| EBITDA Margin (%) |
2.5 |
4.0 |
3.1 |
4.1 |
| ROE (%) |
(1.4) |
(1.0) |
0.2 |
1.1 |
| P/E (adj) (x) |
n/a |
n/a |
410.8 |
64.4 |
| P/B (x) |
0.7 |
0.7 |
0.8 |
0.7 |
| EV/EBITDA (x) |
23.3 |
16.0 |
21.8 |
14.5 |
8. Earnings and Income Statement Highlights
- Operating Profit:
- 2016: KRW355b
- 2017E: KRW47b
- 2018E: KRW24b
- Net Profit:
- 2016: (168)b
- 2017E: 2,995b
- 2018E: 25b
- EPS (adj):
- 2016: (2,713)
- 2017E: (2,267)
- 2018E: 331
- 2019E: 2,113
9. Cash Flow Statement (2016–2019E)
| Metric |
2016 |
2017E |
2018E |
2019E |
| Cash Flow from Operations |
284 |
4,984 |
(15) |
581 |
| Free Cash Flow |
11 |
4,711 |
(288) |
307 |
10. Balance Sheet Highlights
| Metric |
2016 |
2017E |
2018E |
2019E |
| Total Assets (KRWb) |
33,942 |
33,814 |
31,396 |
32,127 |
| Total Liabilities (KRWb) |
21,542 |
21,197 |
17,700 |
18,285 |
| Net Debt (KRWb) |
6,240 |
2,098 |
1,337 |
1,049 |
| Payout Ratio |
0.0 |
0.0 |
0.0 |
0.0 |
11. Financial Ratios (2016–2019E)
| Ratio |
2016 |
2017E |
2018E |
2019E |
| ROE (%) |
(1.4) |
(1.0) |
0.2 |
1.1 |
| ROA (%) |
(0.4) |
8.8 |
0.1 |
0.5 |
| ROIC (%) |
3.6 |
0.2 |
0.1 |
0.8 |
| Net Debt to Equity |
54.3 |
20.1 |
13.0 |
10.8 |
| Interest Coverage (x) |
1.5 |
0.3 |
0.2 |
1.9 |
Key Information
- The company is expected to benefit from an anticipated industry upturn in 2018.
- The rights offering is seen as potentially excessive, which may negatively impact investor sentiment.
- Despite the dilution and lower target price, the BUY recommendation remains due to the potential for debt reduction and industry recovery.
- HHI is projected to achieve higher shipbuilding orders in 2018, assuming a 10–15% price increase.
- The company's net debt is expected to decrease significantly by the end of 2018.
- The report includes detailed financial data and ratios for the period from 2016 to 2019.
Investment Ratings
- BUY: Expected to increase in value by 10% or more within 12 months
- HOLD: Expected to increase or decrease by less than 10%
- SELL: Expected to decrease by 10% or more
- OVERWEIGHT: Expected to outperform the market by 5% or more
- NEUTRAL: Expected to outperform/underperform by less than 5%
- UNDERWEIGHT: Expected to underperform by 5% or more
Disclaimer
- The report is for informational purposes only and does not constitute investment advice.
- It is not intended for public distribution and is subject to copyright.
- Samsung Securities does not guarantee the accuracy or completeness of the information.
- The report is based on publicly available data and is not an offer to buy or sell securities.
