NH Investment & Securities Lowers Hyosung Heavy Industries Target Price Amid Rising Interest Rates

NH Investment & Securities maintained a 'Buy' rating for Hyosung Heavy Industries on August 3, citing continued growth momentum from the expansion of its Changwon plant and increased orders for ultra-high voltage equipment. However, the firm adjusted its target price from 4.4 million won to 4 million won to reflect rising costs of equity due to interest rate increases.

Ryu Seung-won, a researcher at NH Investment & Securities, stated, "The expansion of the Changwon plant is progressing rapidly as planned, and new orders for ultra-high voltage equipment are expected to exceed forecasts. The joint venture with Quanta Services is also a positive factor for expanding market share."

Hyosung Heavy Industries has revised its annual guidance for the heavy industry sector, increasing new orders to 12 trillion won (up from the previous 8.5 trillion won), projecting a revenue growth rate of 25% (up from 15%), and an operating profit margin in the high teens (up from mid-teens).

However, the company reported second-quarter consolidated revenue of 1.7 trillion won, an 11% increase year-on-year, and an operating profit of 264.3 billion won, a 61% increase, which fell short of market consensus. This shortfall was attributed to delays in customer deliveries of ultra-high voltage equipment destined for the U.S., resulting in deferred revenue recognition.

Ryu explained, "Revenue from ultra-high voltage equipment exported from the Changwon plant is recognized upon delivery to customers. Due to the timing difference between exports and deliveries, there was a deferral of revenue in the second quarter, which was double that of the first quarter's 40 billion won." He added, "This situation is similar to what HD Hyundai Electric experienced during its accounting standard changes last year."