Hyundai Engineering ’s planned IPO raises hopes
The planned initial public offering (IPO) of Hyundai Engineering is raising hopes among other unlisted construction companies who could not list on the markets due to a lack of interest among investors.
The listing of the plant engineering arm of Hyundai Motor Group is expected to be finalized by the third quarter at the earliest.
If realized, it will be the first for a major construction company since the IPO of Daewoo E&C in the 2000s.
Among conglomerates’ construction affiliates, SK E&C, POSCO E&C and Lotte E&C were thought to be interested in going public, but none have made any moves to date.
Builders have generally been undervalued on the IPO market compared to IT firms and companies in other promising sectors.
The average price-to-earnings ratio (PER) of IT firms and biotech companies was more than 100 and 120, respectively, according to industry sources, compared to builders average of just 10.
The PER indicates the market value
of a company compared to its earnings. The higher the ratio, the higher the share price compared to its profits.
“It’s not surprising there has not been an IPO of a construction company for almost 20 years,” a source said.
This has put builders at a disadvantage when it comes to financing, as they have to borrow money and fall into debt, instead of raising money on the market.
Given such unfavorable circumstances, the monetary value of Hyundai
Engineering is worth watching, according to industry sources.
This is estimated at 7.5 trillion won ($6.74 billion) on the overthe-counter market but is expected to increase to 10 trillion won if the firm debuts on the KOSPI.
Accordingly, the PER of Hyundai Engineering in relation to its over-the-counter market value could rise from the current 43.6 to 58.2, according to a report by KTB Investment and Securities.
“The PER of Hyundai Engineering is exceptional considering the average PER of construction companies is 10,” the Seoul-based brokerage firm noted.
Meanwhile, market observers picked Samsung Engineering, the plant construction unit of the country’s No. 1 conglomerate, as the next possible candidate for an IPO.
Samsung Engineering saw sales rise 5.6 percent to 6.72 trillion won from 2019 to 2020, although its operating profit fell 8.9 percent to 351 billion won.
The performance, according to observers, is comparable to that of Hyundai Engineering.
During the 2019-20 period, Hyundai Engineering’s sales increased 5.3 percent to 7.18 trillion won, while operating profit fell 36.6 percent to 258.7 billion won.
A source said Samsung Engineering’s latest multi-million dollar deal in Saudi Arabia also deserves attention.
The firm won a $653 million contract, April 14, to build a propane dehydrogenation (PDH) plant for Advanced Global Investment, a subsidiary of the country’s Advanced Petrochemical Co. PDH is a step in the process of producing the plastic propylene from propane.