HD Construction Equipment Co., Ltd.’s Credit Rating Raised to A+ on Merger Benefits; Engine Business a Key Profit Driver [fn Market Watch]

[Financial News] HD Construction Equipment Co., Ltd.’s credit rating was upgraded by one notch following the benefits of its merger with HD Hyundai Infracore. The high-margin engine business is seen as offsetting the construction-equipment business’s sensitivity to economic cycles, improving both business stability and cash generation. 
NICE Information Service said on the 9th that it had upgraded HD Construction Equipment Co., Ltd.’s long-term credit rating from A to A+. It assigned a short-term credit rating of A2+. Park Hyun-joon, an analyst at NICE Investors Service, said, “The key to the rating upgrade is the change in the business structure following the absorption merger with HD Hyundai Infracore,” and explained, “The addition of engines for power generation and defense to a business previously centered on construction equipment such as excavators and wheel loaders, and industrial vehicles, has diversified its revenue sources.” 
The engine business’s average operating margin over the past three years has reached 12.5%. Its profitability is higher than that of the construction-equipment division, and its results are relatively less volatile, so it is expected to cushion the impact of an economic slowdown. The parts and aftermarket (AM) business also has a high average operating margin of 26.2%.
The merger also strengthened the company’s position as the No. 1 player in South Korea’s construction-equipment market. Its global market share, based on combined revenue, rose to 2.3% last year. The share of construction-equipment engines sourced in-house has also increased, and the rate of equipment fitted with in-house engines is projected to exceed 70–80% by 2030.
Improved results also supported the credit rating upgrade. On a combined basis following the merger, revenue for the first three quarters of this year totaled 6.8305 trillion won, up about 15% from 5.9383 trillion won in the same period a year earlier. Over the same period, EBIT, which corresponds to operating profit, rose from 358.7 billion won to 597.3 billion won. The EBIT margin increased by 2.7 percentage points, from 6.0% to 8.7%.
Demand for construction equipment recovered in key markets, while increased orders for engines for power generation and defense drove improved profitability. HD Construction Equipment Co., Ltd. also signed a contract worth 387.9 billion won with U.S. company Enchanted Rock last October to supply power-generation engines. 
However, the burden of large-scale investment remains. Analyst Park said, “Although the expansion of the Ulsan plant and construction of a new engine plant in Gunsan have been completed, development of new models based on an integrated platform and expansion of engine production facilities will continue through 2028.” A stronger won, high market interest rates in the United States, and weak demand in the Middle East and Africa are also factors in managing profitability.
 

[email protected] Kim Hyun-jung Reporter