The author is a KB Securities analyst. He can be contacted at [email protected] – Ed.
Maintain BUY, reduce target price to KRW38,500
We maintain BUY on HDC but reduce our TP (derived from the P / B / ROE model) by 9.4% to KRW38,500 to reflect (1) an increase in the cost of equity (8.1% â 8.4% ) triggered by a rise in risk-free rates and (2) a sustained drop in ROE (7.3% â 6.8%) resulting from revisions to earnings estimates. Considering the company’s disappointing no. of apartments delivered in 2021, we are revising 2022E / 2023E NP (controlling share) down by 2.7% / 5.9%.
Stock appears undervalued despite slower-than-expected project progress due to increasing value of company properties
Since mid-July, HDC stock has maintained a bearish path, which we attribute to a lower than expected number. units delivered (3,740 to 1Q21-3Q21) and delays in the development of large-scale projects in the catchment areas of the metro. We believe investors should focus more on the upside potential of the stock (currently trading at 0.5 x 12m FWD P / B) than the risk of further price declines given (1) the margins high housing beneficiaries, (2) the company’s growing order book, which contrasts with the drop in the supply of units, and (3) the growing value of properties purchased between late 2017 and 2019 (payable in full by the end of 2021), as a property near Kwangwoon University station (purchased for KRW610.0 billion), the Yongsan Railway Hospital site (KRW 220.0 billion) and a development project site in the catchment area of ââGongreung station (KRW 80.0 billion).
3Q21 Sneak Peek: Results Expected to Meet Consensus with Crane Delivery for Busan Newport
We forecast 3Q21 revenue at KRW830.5 billion (+ 2.2% yoy, + 2.2% qoq) and a PO at KRW115.1 billion (-13.2% yoy) , + 9.8% qoq), which is in line with market consensus. Despite the continued contraction in Housing revenue (internally and under contract) resulting from the low n. of the housing provided in 2018-19, HDC fared well with an increase in turnover of KRW 70.0 billion from the delivery of cranes to Busan Newport; From 3Q21 to 2Q22, HDC is expected to register a total turnover of KRW 240.0 billion from cranes.