Kyobo Securities lowered its target price for Hyundai Engineering & Construction stocks from 230,000 won to 180,000 won, a 21.7% reduction, while maintaining a 'Buy' rating. The downgrade reflects delayed nuclear plant contract confirmations rather than deteriorating core business performance, as the brokerage reduced its applied price-to-book ratio (PBR) from 2.7x to 2.2x. The valuation adjustment comes as Hyundai E&C's housing and construction divisions show improving profitability, but ongoing negotiations for nuclear projects including Palisades and Fermi have extended beyond market expectations, prompting a reassessment of the growth premium previously embedded in the stock price.
Kyobo Securities Cuts Hyundai E&C Target Price 21.7%
Kyobo Securities reduced Hyundai Engineering & Construction's target price from 230,000 won to 180,000 won while keeping its 'Buy' investment opinion. The brokerage lowered the PBR multiple applied to the stock from 2.7x to 2.2x, moving from the average level during Hyundai E&C's Middle East plant order expansion period (2005-2008) to the lower-mid range of that era. The new target price of 180,000 won was calculated by applying the 2.2x target PBR to the estimated 2027 adjusted book value per share of 82,453 won, yielding a fair value of 181,396 won. Compared to the base stock price of 99,000 won presented in the report, the new target price represents an upside potential of 81.8%.
Q2 Operating Profit Estimated at 189.8 Billion Won
Kyobo Securities forecast Hyundai E&C's Q2 consolidated revenue at 7.115 trillion won, down 7.8% year-over-year. Operating profit is expected to decrease 12.5% to 189.8 billion won. Both revenue and operating profit estimates align with market consensus. The analyst noted that while top-line figures are declining, profitability in the core business is gradually normalizing.
Housing Division Profitability Improves While Plant Segment Struggles
Hyundai E&C's housing and construction division gross profit margin (GPM) is projected to reach 6.3% in Q2 on a standalone basis, up 1.9 percentage points from 4.4% in Q1. The improvement stems from a "mix effect" as high-cost construction sites reach completion, reducing the revenue share of low-margin projects while increasing the proportion of more profitable businesses.
The plant division shows a slower recovery trajectory. Q2 plant and power division GPM is expected to remain at 2.0% due to cost burdens from Middle East projects, down sharply from 9.6% in Q1. Kyobo Securities anticipates profitability will improve again from the second half of the year as Middle East sites requiring cost processing enter the completion phase. The possibility of additional one-time costs occurring through the end of the year remains.
New Orders May Reach 39 Trillion Won in 2025
Hyundai E&C's new order intake is performing stronger than anticipated. While the company's annual consolidated new order target stands at 33.4 trillion won, Kyobo Securities projects orders could reach 39 trillion won if current trends continue. Q2 new orders are estimated at approximately 10 trillion won, about 15% above the previous forecast of 8.7 trillion won.
Order quality is also expected to improve. Q2 orders are anticipated to include substantial volumes from captive projects (group affiliate contracts) and semi-proprietary projects that can secure some development profits. Compared to Middle East plant projects, these carry relatively lower risk of unexpected costs and provide stable long-term work pipelines, which should support cost ratio improvements in the housing and construction division going forward.
Nuclear Project Contracts Remain in Negotiation Stage
The nuclear power business, which had rapidly driven up Hyundai E&C's stock price, has yet to produce confirmed contracts. As nuclear-related projects remain in the negotiation phase, market attention has shifted from contract size and profitability to when contracts will actually be signed. Core business improvements and new order intake alone have proven insufficient to fully maintain the elevated valuation based on nuclear expectations.
Lee Sang-ho, researcher at Kyobo Securities, stated: "Market expectations have declined due to delayed nuclear orders and the adjustment phase. However, the possibility of a partial Palisades contract in Q3 still exists, and the Fermi hyperscaler power purchase agreement (PPA) is judged to be progressing." Lee added: "If nuclear project contracts are confirmed and business execution accelerates, there is ample possibility to raise the valuation again along with recovered expectations."
FAQ
Why did Kyobo Securities lower Hyundai E&C's target price?
Kyobo Securities reduced the target price from 230,000 won to 180,000 won primarily due to delayed confirmations of nuclear plant contracts. The brokerage lowered its applied PBR multiple from 2.7x to 2.2x to reflect the extended timeline for nuclear projects including Palisades and Fermi to move from negotiation to signed contracts, requiring a reassessment of the growth premium previously factored into the stock valuation.
What is Hyundai E&C's Q2 earnings forecast?
Kyobo Securities estimates Hyundai E&C's Q2 consolidated revenue at 7.115 trillion won (down 7.8% year-over-year) and operating profit at 189.8 billion won (down 12.5% year-over-year). Both figures align with market consensus expectations.
How is profitability changing across Hyundai E&C's business divisions?
The housing and construction division's gross profit margin is expected to improve to 6.3% in Q2 from 4.4% in Q1 as high-cost sites complete. The plant division's gross profit margin is projected to drop to 2.0% in Q2 from 9.6% in Q1 due to Middle East project cost burdens, though recovery is anticipated in the second half of the year.
