20170601-三星证券-Three_catalysts_await_in_2H_11页_692kb

报告摘要

Summary of Hyundai E&C (000720)

Core Content

Hyundai E&C is highlighted as a top pick in the construction sector for the second half of the year due to its strong backlog, solid order intake, and potential to benefit from domestic SOC/infrastructure projects. Additionally, the company is expected to shed a valuation discount related to accrued receivables and unstarted overseas projects. The analyst maintains a BUY rating with a 12-month target price of KRW63,000, despite the current price of KRW48,700 and a P/B ratio of 0.8x, which is near the bottom of its five-year valuation band.

Main Points

Backlog and Order Intake: Hyundai E&C has a substantial backlog equivalent to 3.6 years of sales and has secured USD4.35b in overseas orders year-to-date, which is the highest among domestic players. The company has achieved 37.5% of full-year guidance for order intake.
Infrastructure Opportunities: The firm is well-positioned to benefit from the new government's focus on urban regeneration and infrastructure investments. It has a long history of executing major SOC projects such as the Seoul-Busan highway and Incheon International Airport railway. The company is also involved in several high-profile infrastructure projects, including the GTX Line-A and Yeongdong-daero underground development.
Overseas Projects: Despite delays, the company is expected to see progress on several long-delayed overseas projects in 2H, which should help alleviate concerns and improve its valuation.
Valuation Discount: Concerns over accrued receivables and unstarted overseas projects have caused a discount in the stock price. However, these concerns are expected to ease, leading to a narrowing of the valuation gap with peers.
Financial Performance: The company has shown consistent growth in EPS and net profit over the past few years, with an adjusted EPS growth of 23.3% in 2017E and 16.5% in 2018E. Its P/E ratio is expected to trend downward, reflecting its current undervaluation.

Key Information

Target Price: KRW63,000 (unchanged)
Current Price: KRW48,700
Market Cap: KRW5.4t/USD4.8b
Shares (float): 111,355,765
52-week High/Low: KRW51,300/KRW31,900
Avg Daily Trading Value (60-day): KRW18.7b/USD16.7m

Catalysts for 2H

Ample Backlog and Order Intake: The company has a significant backlog and has achieved a solid order intake, which should support sales growth in 2017 and 2018.
Benefits from Domestic SOC/Infrastructure Projects: With a strong track record in infrastructure projects, the firm is well-positioned to win contracts from the new government.
Shedding of Valuation Discount: As concerns over accrued receivables and unstarted overseas projects ease, the company's valuation is expected to improve.

Financial Highlights

Revenue Growth: Expected to grow from 18,921 KRWb in 2017E to 20,873 KRWb in 2019E.
Net Profit (adj): Projected to increase from 712 KRWb in 2017E to 920 KRWb in 2019E.
EPS (adj): Expected to rise from 5,432 KRW in 2017E to 7,019 KRW in 2019E.
EBITDA Margin: Maintained at around 6.6% to 6.7% over the forecast period.
ROE: Projected to increase from 9.1% in 2017E to 9.9% in 2019E.
P/B Ratio: At 0.8x in 2017E, indicating a discount relative to peers.
EV/EBITDA: Expected to decrease from 4.2x in 2017E to 2.7x in 2019E.

Valuation Metrics

P/E (adj): 9.0x in 2017E, expected to trend downward.
P/B (x): 0.8x in 2017E, with a five-year valuation band ranging from 0.7x to 0.9x.
Forward P/E Band: 6.9x in 2019E.
Forward P/B Band: 0.7x in 2019E.

Risk and Compliance

The analyst does not hold any shares or convertible debt instruments in the company.
Samsung Securities' holdings do not exceed 1% of any company's outstanding shares if converted.
The report is prepared without undue external influence and is accurate and complete to the best of the analyst's knowledge.

Conclusion

Hyundai E&C is expected to benefit from its strong backlog, solid order intake, and the government's focus on SOC/infrastructure projects. The valuation discount is anticipated to narrow as concerns over accrued receivables and unstarted overseas projects ease. The analyst maintains a BUY rating with an unchanged 12-month target price of KRW63,000.

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