“HD HYUNDAI ENERGY SOLUTIONS CO., LTD.’s third-quarter results are shocking”... Price target cut

[Financial News] DS Investment & Securities lowered its earnings estimates for this year and next to reflect weak third-quarter results at HD HYUNDAI ENERGY SOLUTIONS CO., LTD., and cut its target price from 260,000 won to 170,000 won. It maintained its “Buy” rating.
Joo Won Ahn, an analyst at DS Investment & Securities, said on the 27th, “Third-quarter revenue is estimated at 150.8 billion won and operating profit at 20.4 billion won, both far below estimates,” explaining that “cost pressures increased because raw materials purchased in the second quarter at high exchange rates were used in third-quarter production.”
Third-quarter revenue and operating profit rose 24.5% and 39.0%, respectively, from a year earlier. However, operating profit fell short of DS Investment & Securities’ estimate by 46.5% and the market consensus by 41.3%.
Ahn said, “We had forecast that operating profit of around 30 billion won would be achievable even excluding about 5 billion won in one-off profit in the second quarter, but results were weaker due to exchange-rate effects,” adding, “Sales volume increased the most in the U.S., while selling prices appear to have changed little.”
He expected cost pressures to ease in the fourth quarter. “Most of the high-cost raw materials are also estimated to have already been used,” he said. “The exchange-rate impact in the fourth quarter is not expected to be as significant as in the third quarter.”
Fourth-quarter revenue is forecast to rise 6.4% year over year to 162.5 billion won, while operating profit is expected to increase 75.9% to 25.5 billion won. The projected operating margin is 15.7%.
Ahn forecast, “In the U.S., revenue of about 30 billion won from Hillsboro is beginning to be fully reflected, and sales are expected to remain solid as the inventory remaining there is depleted. In Korea, steady demand is expected to support stable results.”
Full-year revenue and operating profit are estimated at 638.2 billion won and 111 billion won, respectively. He added, “Whether domestic production facilities are expanded, and next year’s business plan reflecting that, will be important for a meaningful rise in the share price to continue,” and “the share price is expected to rise as the key factors driving a rebound become clearer.”
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