HYHZF:RESEARCH 2007-07-24:Hyundai Heavy Industries (009540.KS): Buy:
Extending Its Leadership (C)
By some miracle I _can_ load C's .pdf file so here are the first, few paragraphs. As I noted in a posting to another thread a few months ago, one has to buy local shares (009540.KS), cannot buy HYHZF ADRs. This is the first stock I have purchased on a foreign exchange. In almost 6 months to the day, the shares are up well over 150% and C gives an expected total return in the report of another 129.7% (with it's 1.1% dividend included):
? Further expansion of capacity — While HHI has achieved good capacity growth
through productivity improvements, the company also took the further step of
expanding its drydock space by lengthening existing docks. We expect this
expansion to feed through to top line growth for the company starting from
2008E.
? Earnings revision — Reflecting its capacity expansion, we revise up our top-line
figures by 2.0–8.6% for 2008–2012E. Also, considering the sharper move in
shipbuilding prices that we expect going forward, we revise up our EPS forecast
for 2008–2012E by 6.8–21.4%.
? Raising target price to W840,000 with a Buy/Medium Risk (1M) rating — We
raise our target price to W840,000 based on 3.1x 2011E P/B, up from
W450,000. This is based on current valuation of global shipping companies,
and the application of a 20% premium over its peers, considering its vertically
integrated business structure, and stronger growth in its non-shipbuilding units.
[snip]
Hyundai Heavy Industries – Extending its Leadership
Hyundai Heavy Industries continues to further expand of its capacity in addition
to its fast improvement in operations. Recently, the company extended the
length of its No. 5 and No. 9 drydocks by 120 meters and 100 meters
respectively. The expansion of the drydocks is expected to enable the company
to take on additional new orders, around 8-10 vessels for 2009 and 2010
delivery respectively with premium for early delivery, in our view. Considering
the premium over the early delivery slots, together with our expectation over the
hike of new building prices, we raise our sales outlook by 2.0–8.6% and
earnings outlook by 6.8–21.4%.
[snip]
Raising Target Price based on 3.1x 2011E P/B
We maintain our Buy rating on the stock and increase our target price to
W840,000 based on 3.1x 2011E P/B, up from W450,000. Our target multiple is
derived from the global shipping industry. Currently, global shipping companies
trade at 2.63x 07E book. With the improved earnings visibility of Korean
shipbuilders until 2011, we believe it is time to value Korean shipbuilding
stocks based on 2011E P/B, from 2010E P/B previously. Considering the lag
between current shipping industries, and the three to four year lag in
shipbuilders’ earnings, we think it is appropriate to use 2011E multiples. We
apply a 20% premium to Hyundai Heavy over its peers to take into account its
vertically integrated business structure, and its dominant position in the market.
Our target price suggests 130% upside and is equivalent to 10.8x 2011E P/E.
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Today it closed at 378,500 Won ($414.90). The high earlier this month was 403,500 Won.
Lynn |
