Hyundai Development Company (012630.

KS)
Comment
Jan 25, 2013

Hold (maintain)
TP

2013 earnings turnaround to be weaker than

expected

W22,000 (lower)

CP (13/01/24)

W21,650

4Q12 preview: Ear nings to miss consensus on deter ior ating mar gins at
housing arm

Analyst
Wayne Lee

822)768-7598, wayne.lee@wooriwm.com

Derek Lee

822)768-7737, derek.lee@wooriwm.com

We expect Hyundai Development Company (HDC) to register 4Q12 (consolidated)

sales of W943.4bn (down 23% y-y). On a non-consolidated basis, sales are estimated at
W647bn, a decline of 35% y-y.
Amid the sharp deterioration of the pre-sale apartment market since early-2012, the
companys gross margin is highly likely to disappoint at some recently-completed
projects (in 4Q12), including projects in Ulsan and Daegu.
We revise down our 2013 (consolidated) operating margin forecast from 7.9% to 6.4%
(vs 9.8% in 2011 and 1.5% in 2012), as: 1) margins on self-owned land construction
projects are expected to fall sharply; and 2) the sales contribution from self-owned land
construction projects is likely to rise slower than expected, given that in 2012, the
number of pre-sale apartments related to self-owned construction projects stood at only
3,800 units (out of total pre-sale apartments of 11,300 units).

Will shares retur n to housing sector boom P/B level of 1x?

We maintain our Hold rating and slightly lower our target from W23,000 to W22,000.
Believing that it is unlikely to enjoy a lofty ROE (such as that experienced during the
housing sector boom), we maintain our conservative stance towards HDC. Assuming
the companys portfolio remains centered on housing, we estimate a sustainable ROE
of 5~6% and a fair P/B of around 0.7x.
Sector

Construction

Kospi
1,964.48
Kosdaq
508.63
Market cap (common)
US$1,529.28mn
Outstanding shares (common)
75.4mn
52W high (12/03/16)
W28,850
low (12/11/16)
W17,800
Dividend yield (2011)
4.2%
Foreign ownership
49.0%

That being said, should the firms shares pull back sharply (due to soft 4Q12 results), we
recommend adopting a conservative trading buy approach, given that the property
market is likely to pick up gradually in Seoul and neighboring cities in 2H13.
In order to merit a P/B valuation of more than 0.7x, we believe that sustainable ROE
growth is necessary. Fortunately, according to recent media reports, there is possibility
that HDC will secure orders related to the Tongyeong complex power plant number one
(920MW), a project which is outlined under the governments 6th Long-term Power
Development Plan. Should the company secure growth potential in the power plant
market, we believe that its sustainable ROE would improve.

Price trend
200
150

Hyundai Development Company

KOSPI

100
50
0
'12.1 '12.3 '12.5 '12.7 '12.9 '12.11

(Units: Wbn, %)

4Q12 preview

Sales
Operating profit
Pre-tax profit
Net profit excl minority interests

4Q11

3Q12

1,225.4
149.9
115.6
90.8

806.9
27.0
15.6
6.8

Source: FnGuide, Woori I&S Research Center estimates

www.wooriwm.com

Estimates
943.4
2.8
-15.5
-13.9

4Q12E
y-y
q-q
-23.0
-98.1
N/A
N/A

16.9
-89.5
N/A
N/A

Consensus
940.9
54.5
33.6
25.5

Hyundai Development Company

www.wooriwm.com

Earnings forecasts

(Units: Wbn, won, x, %)

Sales

2011
4,108

- Revised
- Previous
- Change
- Revised
- Previous
- Change
- Revised
- Previous
- Change

Operating profit

Adj operating profit

EBITDA
Net profit
Net profit excl minority interests
EPS

2012E
3,361
3,361
0.0
52
115
-55.0
116
179
-35.2
75
27
20
269
563
-52.2
80.5
0.7
42.3
0.8

401

403

438
225
222
2,942

- Revised
- Previous
- Change

P/E
P/B
EV/EBITDA
ROE

5.7
0.5
7.0
9.1

2013F
3,927
3,807
3.2
251
302
-16.7
251
302
-16.7
276
131
119
1,582
1,644
-3.7
13.7
0.7
11.7
4.8

2014F
4,162
4,083
1.9
275
368
-25.2
275
368
-25.2
300
147
133
1,771
2,099
-15.6
12.2
0.6
10.8
5.2

Source: Woori I&S Research Center estimates

With current business structure, ROE and P/B unlikely to rise above 5% and 0.7x, respectively
(won)
160,000

Price(LHS)

0.5x

1.0x

3.0x

4.0x

ROE(RHS)

2.0x

(%)
25

140,000

20

120,000
100,000

15

80,000
10

60,000
40,000

20,000

0
'05.1

'06.1

'07.1

'08.1

'09.1

'10.1

'11.1

'12.1

'13.1

'14.1

Source: Woori I&S Research Center estimates

Hyundai Development Company

www.wooriwm.com

Rating and target price update

Company

Code

Date

Rating

Target price

Hyundai
Development
Company

012630.KS

2013.01.25

Hold

W22,000(12M)

2012.07.23

Hold

W23,000(12M)

2012.07.05

Hold

W25,900(12M)

2011.10.13

Hold

W22,500(12M)

2011.04.13

Hold

W34,000(12M)

(won)
50,000

Closing Price
Target price(12M)

40,000
30,000
20,000
10,000
0
'11.1

'11.4

'11.7 '11.10 '12.1

'12.4

'12.7 '12.10

Woori Investment & Securities stock ratings

1. Period: Uniform 12-month
2. Rating System: Based on a stocks absolute return from the date of publication
l Strong Buy: high conviction Buy rated stocks
l Buy: greater than +15%
l Hold: 0% and +15%
l Reduce: less than 0%

Compliance notice
l
l
l
l

Woori I&S does not have a stake greater than or equal to 1% in Hyundai Development Company as of the preparation date.
Woori I&S has not provided this material to any institutional investor or other third party in advance.
The analyst and his/her spouse do not own any securities of Hyundai Development Company as of the preparation date.
This report correctly reflects the analysts opinion and was written without any external influence or intervention.

Disclosures
The research is based on current public information that Woori I&S considers reliable, but Woori I&S does not represent it as accurate or complete and it should not be relied on as such.
Furthermore, the research does not take into account particular investment objectives, financial situations or individual client needs, and Woori I&S is in no way legally responsible for future
returns or loss of original capital. All materials in this report are the intellectual property of Woori I&S. Copying, distributing, transmitting, transforming or lending of this material without Woori
I&S' consent is prohibited.