20171110-三星证券-Parent_solid,_subsidiaries_soft_6页_397kb

Hyundai Green Food (005440) Summary

Core Content

Hyundai Green Food (HGF) is a subsidiary of Hyundai Group, with a parent company that is considered strong while its subsidiaries face challenges. The company's performance in the third quarter of 2017 was disappointing, with consolidated sales and operating profit slightly below expectations. Despite this, the firm continues to focus on improving efficiency, which has positively impacted its margins.

Main Points

• 3Q 2017 Performance:

  • Consolidated sales fell by 1.9% year-over-year (YoY) to KRW607.9b, and operating profit increased by 0.6% YoY to KRW26.9b, but missed the consensus by 14%.
  • Subsidiaries Hyundai H&S and Everdigm underperformed, with Hyundai H&S seeing a 54.5% YoY drop in operating profit and Everdigm experiencing 13% and 48% YoY declines in sales and operating profit, respectively, due to delayed orders and a slowing domestic construction industry.
  • On a parent basis, sales were slightly up due to more business days, while the retail (B2C) division saw a 4.8% YoY decline due to contract expiration, anti-corruption law implementation, and fewer business days.

• Efficiency Improvements:

  • HGF has been improving efficiency by integrating raw material purchases, which has led to better gross margin and operating margin.
  • Parent-based gross margin increased by 1.7% YoY, and operating margin by 1.2% YoY.
  • Equity-method gains rose 26% YoY, driven by strong performances from Hyundai Livart and Hyundai Home Shopping.

• Valuation and Target Price:

  • The analyst maintains a BUY rating with a target price of KRW20,000, believing the stock is undervalued despite improving fundamentals.
  • The stock is trading at 13x 2018 P/E and 8x EV/EBITDA, which are seen as low relative to its performance.
  • The company is expected to have a net cash position of KRW350b in 2018, which could enhance its valuation appeal.

• Financial Overview (2016–2018E):

  • EPS growth is expected to be 13.2% in 2017 and 10.4% in 2018.
  • ROE is projected to increase from 6.4% in 2016 to 7.0% in 2018.
  • P/E ratio is expected to decrease from 16.5 in 2016 to 13.2 in 2017 and further to 12.8 in 2018.
  • P/B ratio is projected to decrease from 0.9 in 2016 to 0.8 in 2018.
  • EV/EBITDA is expected to drop from 10.6 in 2016 to 8.5 in 2018.

• Key Financial Metrics:

  • Sales are expected to increase by 2.8% in 2017 and 2.8% in 2018.
  • Operating profit is projected to grow by 6.7% in 2017 and 10.1% in 2018.
  • Net profit is expected to rise by 12.6% in 2017 and 5.4% in 2018.
  • Net debt to equity is projected to increase from (16.3%) in 2016 to (19.1%) in 2018.
  • Interest coverage is expected to improve from 45.6 in 2016 to 72.0 in 2017 and 69.6 in 2018.

Key Information

• Market Cap: KRW1.6t/USD1.4b
• Shares (float): 97,704,482
• 52-week high/low: KRW18,600/KRW14,950
• Current Price: KRW16,050
• Target Price: KRW20,000 (up by 24.6% from current price)
• Analyst: Sanghoon Cho, Samsung Securities
• Date: 2017.11.10

Summary of Financials (2015–2019E)

Ratings and Market Performance

• Rating: BUY

• Ratings Distribution (12 months prior to Sep 30, 2017):

  • BUY: 82.2%
  • HOLD: 17.8%
  • SELL: 0%

• Performance (vs Kospi):

  • 1M: -2.8%
  • 6M: -10.7%
  • 12M: -27.1%

Conclusion

Despite a disappointing 3Q performance, Hyundai Green Food remains a BUY candidate due to its focus on efficiency improvements, which have driven margin expansion and equity-method gains. The analyst believes the stock is undervalued with a target price of KRW20,000, and that the firm's core operations are showing improvement, with expected EPS growth and better financial metrics. The company's subsidiaries are expected to see a turnaround in the coming quarters, and its net cash position in 2018 could further support its valuation.