[Click e-Stock] "HD Hyundai Electric's Current Valuation Discount Is Excessive... Target Price Cut"

Korea Investment & Securities said on October 28 that the current valuation discount for HD Hyundai Electric was excessive. It lowered its target price from KRW 1.1 million to KRW 870,000 while maintaining its "Buy" rating.

"We lowered our target price by 20.9% from the previous level by reducing our target price-to-earnings (PER) multiple in consideration of the gap between the current share price and the target price," said Jang Namhyun, an analyst at Korea Investment & Securities. "However, given the company's medium- to long-term earnings and order growth prospects, the current valuation discount is excessive."

HD Hyundai Electric reported third-quarter consolidated revenue of KRW 1.1799 trillion, up 18.5% year over year, and operating profit of KRW 284.5 billion, up 15.1%. Operating profit fell 6.7% short of the consensus estimate—the average forecast of securities firms—of KRW 305 billion. "The share of revenue from North America, where profitability is high, fell 9.5 percentage points from the previous quarter to 38%, while the share of domestic revenue increased," Jang said. "The negative impact of exchange-rate fluctuations also contributed to a 1-percentage-point decline in the operating margin from the previous quarter, to 24.1%."

Growth in the power distribution equipment business continues. Revenue from power distribution equipment rose 85.8% year over year to KRW 325.1 billion, driven by increased deliveries at home and abroad and the recognition of revenue from new-business orders. "Order negotiations with big tech companies are also proceeding smoothly, and long-term supply contracts are expected to begin in the fourth quarter," Jang said. "In addition, discussions on developing generators for HD Hyundai Heavy Industries engines for AI data centers are gaining momentum, and new orders are expected in the fourth quarter of this year and the first quarter of next year."

As its data-related order base expands, HD Hyundai Electric is broadening its business from supplying individual power distribution equipment to providing packages encompassing circuit breakers, switchgear and distribution transformers. In response, the company has decided to invest KRW 198 billion in the second phase of expansion at its Cheongju Power Distribution Campus. "The key focus of this investment is to expand distribution transformer production capacity," Jang said. "With revenue recognition from large-scale projects for big tech companies beginning, distribution transformer revenue is expected to more than double in 2027 from the previous level. This makes expanded production capacity necessary." The expansion is scheduled for completion in June 2029, and is expected to increase annual revenue by KRW 250 billion once completed.

Korea Investment & Securities forecast steady earnings growth for HD Hyundai Electric, with the compound annual growth rate in its 2025-2028 earnings-per-share (EPS) estimate reaching 29.0%.

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