"HD Hyundai Energy Solutions Hit by Sharp Exchange Rate Drop... Target Price Cut" [Click e-Stock]

"Third-quarter operating profit fell short of market expectations"
"Profitability expected to recover if exchange rates stabilize"

Kyobo Securities lowered its target price for HD Hyundai Energy Solutions to KRW 184,000 from KRW 275,000 on the 27th, saying, "The company's third-quarter results this year were weak due to exchange-rate effects." It maintained its Buy rating.

That day, Kyobo Securities analyst Cho Hyebin said, "HD Hyundai Energy Solutions reported third-quarter revenue of KRW 150.8 billion, up 24.6% year over year, and operating profit of KRW 20.4 billion, up 39.0%. Operating profit came in 41.5% below market expectations, with most of the shortfall stemming from exchange rates." She added that this was the reason for the target-price cut.

With no currency hedging in place, the average exchange rate for the quarter fell 5.6%, from KRW 1,502 to KRW 1,418 per dollar. The decline reduced the won-equivalent value of HD Hyundai Energy Solutions' dollar-denominated revenue, while raw materials purchased in the second quarter at higher exchange rates were reflected in third-quarter costs.

Analyst Cho estimated the exchange-rate impact at KRW 8.4 billion, saying, "Excluding this effect, operating profit was KRW 29 billion, with an operating margin of 19%, slightly below the second quarter's normalized operating profit of KRW 30.6 billion." She noted that "the difference stems from a gap in European revenue following the completion of the Angola project."

By business segment, revenue from the company's core solar module business reached KRW 120 billion, up 30.9% year over year. Domestic module revenue rose 10.5% from the previous quarter to KRW 48.4 billion, fully reflecting the impact of higher shipments.

By contrast, U.S. module revenue came to just KRW 63.4 billion. The weaker exchange rate reduced revenue in won, and the lag in cost recognition also contributed, resulting in the largest decline in margins. European revenue was KRW 7.3 billion, affected by the completion of the Angola project. Revenue in the Solutions segment, which handles inverters and engineering, procurement and construction (EPC), reached KRW 30.3 billion, continuing to benefit from expanding solid demand.

However, the improvement in results is expected to remain somewhat limited in the fourth quarter. Analyst Cho said, "The exchange rate has fallen further to the 1,330-won range this month, so the lag in cost recognition will continue into the fourth quarter." She added, "The KRW 43 billion in Hillsboro revenue is under a won-denominated contract, so it will not be affected by exchange rates, but margins are low, limiting any improvement in profitability."

Policy-related uncertainty was also cited as a short-term variable. Analyst Cho said, "The National Assembly report on the 12th Basic Plan for Electricity Supply and Demand has been scheduled for late December or early January, while the possibility of a downward revision to demand forecasts for AI data centers has been indicated. Expectations for related policies should therefore be held in check until the plan is finalized."

Still, the stock is nearing a bottom, making a Buy approach worthwhile, she said. Analyst Cho added, "With selling prices and sales volumes holding steady, profitability can recover once exchange rates stabilize." She continued, "At 10.5 times its 12-month forward price-to-earnings ratio (PER), the current share price already fully reflects the downward revision to earnings estimates, making a Buy approach worthwhile at current levels."

This content was produced with the assistance of AI translation services.