Hyundai Engineering IPO raises concerns over value of Hyundai E&C

The Korea Times

The Korea Times

Business

Tue, October 3, 2023 | 04:17

Companies

Hyundai Engineering IPO raises concerns over value of Hyundai E&C

Posted : 2022-01-18 15:24

Updated : 2022-01-18 19:09

Hyundai E&C CEO Yoon Young-joon, left, and Hyundai Engineering CEO Kim Chang-hag / Courtesy of each company

By Park Jae-hyuk

Hyundai Engineering's planned listing on the benchmark KOSPI market next month is prompting investors to continue dumping their shares in its parent firm, Hyundai E&C, based on the belief that the former will become the nation's largest builder in terms of market cap.

According to Hyundai Engineering's prospectus, Tuesday, its market cap may reach up to 6 trillion won ($5 billion), immediately after its initial public offering (IPO) slated for Feb. 15, if its IPO price is set at the top end of the range. Some securities analysts even estimated the company's valuation at 10 trillion won.

In contrast, Hyundai E&C's market cap has remained below 5 trillion won, as its stock price has continued to spiral downwards, since the financial authorities gave their approval for Hyundai Engineering's listing last December.

If Hyundai Engineering becomes the business bellwether, Hyundai E&C could suffer an additional fall in its stock price, because institutional investors will exclude the parent from their index funds and exchange traded funds, while including the subsidiary.

Market participants have continued to shift their focus onto Hyundai Engineering from Hyundai E&C, as the former is set to play key roles in the managerial succession of Hyundai Motor Group's owner family. Hyundai Motor Group Chairman Chung Euisun is expected to sell part of his stake in Hyundai Engineering after its IPO, in order to acquire an additional stake in Hyundai Mobis or pay taxes on the company's shares that he will inherit from his father.

Hyundai E&C, however, has yet to differentiate itself from its subsidiary in terms of business portfolios. Both companies have engaged in the construction of plants and housing, since Hyundai Engineering entered the field after acquiring another unlisted affiliate, Hyundai Amco, in 2014.

In terms of profitability, Hyundai Engineering has already outperformed Hyundai E&C, as the former posted larger operating profits than the latter between 2017 and 2020, by expanding its presence in construction related to renewable energy facilities. Hyundai Engineering plans to focus more on environmental energy sectors, extracting hydrogen from waste plastic and carbon dioxide, as well as building micro-modular reactors. It aims for its renewable energy businesses to generate 10 percent of its revenue within the next three years.

Its ambitious plan is expected to enable the company to supply hydrogen to the group's hydrogen value chain. In that case, Hyundai Motor Group will feel less of a necessity to support Hyundai E&C, according to analysts.

"Investors shifting focus onto Hyundai Engineering before its IPO will affect Hyundai E&C's stock price," KTB Investment & Securities analyst, Ra Jin-sung, said in a report. "This is regrettable ahead of the company's unusual structural reforms."

pjh@koreatimes.co.kr