Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

Hyundai Engineering   / Equity Capital Markets

<ul>
<li>Our base case valuation of Hyundai Engineering Co Ltd is EV of 3.3 trillion won, implied market cap of 5.4 trillion won, and target price of 67,475 won per share. </li>
<li>This is within the IPO price range of 57,900 won and 75,700 won per share. Given the lack of upside, we have a Negative view of this IPO.</li>
<li>Our base case valuation is based on 6.3x EV/EBITDA valuation multiple using 2022 estimated EBITDA of 526 billion won.</li>
</ul>


Our base case valuation of Hyundai Engineering Co Ltd is EV of 3.3 trillion won, implied market cap of 5.4 trillion won, and target price of 67,475 won per share. 
This is within the IPO price range of 57,900 won and 75,700 won per share. Given the lack of upside, we have a Negative view of this IPO.
Our base case valuation is based on 6.3x EV/EBITDA valuation multiple using 2022 estimated EBITDA of 526 billion won.


Hyundai Engineering IPO Valuation Analysis

APAC IPOs & Placements, Aequitas Research

Clarence Chu

APAC IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<ul>
<li>
<a href="https://www.smartkarma.com/entities/hyundai-engineering-co-ltd" target="_blank" data-smartkarma-citation="entities:33008:1" rel="noopener">Hyundai Engineering Co Ltd (HEC KS)</a> is looking to raise up to US$1bn in its upcoming Korea IPO.</li>
<li>Whilst the firm has a relatively high concentration of international orders in its backlog, 40% in 9M21, it has been on the down trend since 2016.</li>
<li>In this note, we discuss peer comparison, our assumptions and valuation against domestic and international peers.</li>
</ul>



Hyundai Engineering Co Ltd (HEC KS) is looking to raise up to US$1bn in its upcoming Korea IPO.
Whilst the firm has a relatively high concentration of international orders in its backlog, 40% in 9M21, it has been on the down trend since 2016.
In this note, we discuss peer comparison, our assumptions and valuation against domestic and international peers.


Hyundai Engineering Pre-IPO - Unjustifiable Premium to Most Domestic Peers

<ul>
<li>
<a href="https://www.smartkarma.com/entities/hyundai-engineering-co-ltd" target="_blank" data-smartkarma-citation="entities:33008:1" rel="noopener">Hyundai Engineering Co Ltd (HEC KS)</a> is looking to raise up to US$1bn in its upcoming Korea IPO. </li>
<li>Hyundai Engineering is an engineering firm that covers the entire life-cycle, from procurement, development, maintenance post-completion of the building/project.</li>
<li>As per Korea Construction Association in 2021, it ranks 6th position, with a construction capacity of KRW8.5 tn.</li>
</ul>



Hyundai Engineering Co Ltd (HEC KS) is looking to raise up to US$1bn in its upcoming Korea IPO. 
Hyundai Engineering is an engineering firm that covers the entire life-cycle, from procurement, development, maintenance post-completion of the building/project.
As per Korea Construction Association in 2021, it ranks 6th position, with a construction capacity of KRW8.5 tn.


Hyundai Engineering Pre-IPO - Order Backlog Aids Visibility However, Margins Have Been Fluctuating

<ul>
<li>Hyundai Engineering Co Ltd is getting ready to complete its IPO in KOSPI in February 2022. The IPO price range is from 57,900 won to 75,700 won per share. </li>
<li>The IPO of Hyundai Engineering could be an important catalyst for the restructuring of the entire Hyundai Motor Group as Chung Eui-Sun could increase his stake in Hyundai Mobis.</li>
<li>The bankers included too many overseas comps with fat valuation multiples. This is a bit concerning in terms of how the bankers derived the IPO price range.</li>
</ul>


Hyundai Engineering Co Ltd is getting ready to complete its IPO in KOSPI in February 2022. The IPO price range is from 57,900 won to 75,700 won per share. 
The IPO of Hyundai Engineering could be an important catalyst for the restructuring of the entire Hyundai Motor Group as Chung Eui-Sun could increase his stake in Hyundai Mobis.
The bankers included too many overseas comps with fat valuation multiples. This is a bit concerning in terms of how the bankers derived the IPO price range.


Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

Event-Driven

Hyundai Engineering & Construction / Event-Driven

<p>Hyundai E&amp;C 1P's subscription rights trading was very active on the first trading day. In this event, which offers a total of 2 million preferred shares, 1.83M subscription rights are listed for trade.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Hyundai E&amp;C 68PR"}'>Hyundai E&amp;C 68PR</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Total offering"}'>Total offering</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2000000}' data-sheets-numberformat='{"1":2,"2":"#,##0"}'>2,000,000</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Subscription rights listed for trade"}'>Subscription rights listed for trade</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1832367}' data-sheets-numberformat='{"1":2,"2":"#,##0"}'>1,832,367</td>
</tr>
<tr><td colspan="2">Source: KRX</td></tr>
</tbody>
</table><p>Of this, 0.51M, nearly a third, was traded on the first trading day. Interestingly, however, the rights price fell sharply in the afternoon, ending at ₩3,460. On this day, VWAP was ₩6,419.</p><table class="table table-striped">
<colgroup>
<col width="300">
<col width="100">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Subscription rights (₩)"}'>Subscription rights</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Close"}'>Close</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Volume"}'>Volume</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Value"}'>Value</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"VWAP"}'>VWAP</td>
</tr>
<tr>
<td data-sheets-value='{"1":3,"3":44470}' data-sheets-numberformat='{"1":5,"2":"mm\"/\"dd","3":1}' data-sheets-formula="=R[-1]C[0]-4">10/01</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3460}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}'>₩3,460</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":510183}' data-sheets-numberformat='{"1":2,"2":"#,##0"}'>510,183</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3274741535}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}'>₩3,274,741,535</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":6418.7586317066625}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-formula="=R[0]C[-1]/R[0]C[-2]">₩6,419</td>
</tr>
<tr><td colspan="5" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table><div><p>This offering has a whopping 45% discount. The specific formula of how to fix the offering price is shown below.</p></div><div><div>
<table class="table table-striped">
<colgroup>
<col width="400">
<col width="400">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Pricing"}'>Pricing</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1st round"}'>1st round</td>
<td data-sheets-value='{"1":2,"2":"RP × (1 - 45%) / [1 + (1.79% × 45%)]"}' data-sheets-formula='="RP × (1 - "&amp;(R[11]C[0]*100&amp;"%")&amp;") / [1 + ("&amp;(R[12]C[0]*100&amp;"%"&amp;" × "&amp;(R[11]C[0]*100&amp;"%"&amp;")]"))'>RP × (1 - 45%) / [1 + (1.79% × 45%)]</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Reference price (RP)"}'>- Reference price (RP)</td>
<td data-sheets-value='{"1":2,"2":"Min [Close, Avg (Close, 1W VWAP, 1M VWAP)]"}'>Min [Close, Avg (Close, 1W VWAP, 1M VWAP)]</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Reference date"}'>- Reference date</td>
<td data-sheets-value='{"1":3,"3":44438}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}' data-sheets-formula="=Terms!R[26]C[0]">2021. 08. 30</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Ex-rights base price"}'>Ex-rights base price</td>
<td data-sheets-value='{"1":2,"2":"[RP + (1st × 1.79%)] / (1 + 1.79%)"}' data-sheets-formula='="[RP + (1st × "&amp;R[9]C[0]*100&amp;"%"&amp;")] / (1 + "&amp;R[9]C[0]*100&amp;"%"&amp;")"'>[RP + (1st × 1.79%)] / (1 + 1.79%)</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Reference price (RP)"}'>- Reference price (RP)</td>
<td data-sheets-value='{"1":2,"2":"Previous close"}'>Previous close</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Reference date"}'>- Reference date</td>
<td data-sheets-value='{"1":3,"3":44440}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}' data-sheets-formula="=Terms!R[24]C[0]">2021. 09. 01</td>
</tr>
<tr><td colspan="2"></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"2nd round"}'><strong>2nd round</strong></td>
<td data-sheets-value='{"1":2,"2":"RP × (1 - 45%)"}' data-sheets-formula='="RP × (1 - "&amp;(R[5]C[0]*100&amp;"%")&amp;")"'><strong>RP × (1 - 45%)</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Reference price (RP)"}'><strong>- Reference price (RP)</strong></td>
<td data-sheets-value='{"1":2,"2":"Min [Close, Avg (Close, 1W VWAP)]"}'><strong>Min [Close, Avg (Close, 1W VWAP)]</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Reference date"}'><strong>- Reference date</strong></td>
<td data-sheets-value='{"1":3,"3":44487}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}' data-sheets-formula="=Terms!R[25]C[0]"><strong>2021. 10. 18</strong></td>
</tr>
<tr><td colspan="2"><strong> </strong></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Final"}'>Final</td>
<td data-sheets-value='{"1":2,"2":"Min (1st, 2nd)"}'>Min (1st, 2nd)</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Reference date"}'>- Reference date</td>
<td data-sheets-value='{"1":3,"3":44487}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}' data-sheets-formula="=Terms!R[23]C[0]">2021. 10. 18</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Discount rate"}'><strong>Discount rate</strong></td>
<td data-sheets-value='{"1":3,"3":0.45}'><strong>45.00%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Capital increase rate"}'>Capital increase rate</td>
<td data-sheets-value='{"1":3,"3":0.0179}' data-sheets-formula="=Terms!R[4]C[0]">1.79%</td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table>
<p>The 1st round price got settled at ₩98,300, which, of course, serves as the ceiling price since whichever lower of the 1st and the 2nd will be the final price.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/233/488/original/1.png?1633388693" class="editor-image img-responsive" data-smartkarma-image-id="233488"></figure></section><p>Of course, we don't know where and how much the 1P price will head and will get corrected before the 2nd round pricing date, which is October 18. But at the current price, we have this vast spread. If we buy subscription rights at the last close (₩3,460) and the current 1P share price holds until October 18, we will likely enjoy a 75.40% return.</p>
<table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Spread status"}'>Spread status</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Current price"}'>Current price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":172000}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-formula='=googlefinance(Terms!R[-11]C[0], "price")'>₩172,000</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":": 45% discount"}'>: 45% discount</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":94600.00000000001}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-formula="=R[-1]C[0]*(1-0.45)">₩94,600</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Subscription rights price"}'>Subscription rights price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3460}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-formula="=R[-14]C[0]">₩3,460</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Spread"}'><strong>Spread</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.7540281460330407}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R[-3]C[0]-(R[-2]C[0]+R[-1]C[0]))/(R[-2]C[0]+R[-1]C[0])"><strong>75.40%</strong></td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table>
</div></div>

Hyundai E&amp;C 1P's subscription rights trading was very active on the first trading day. In this event, which offers a total of 2 million preferred shares, 1.83M subscription rights are listed for trade.





Hyundai E&amp;C 68PR

Total offering
2,000,000


Subscription rights listed for trade
1,832,367

Source: KRX

Of this, 0.51M, nearly a third, was traded on the first trading day. Interestingly, however, the rights price fell sharply in the afternoon, ending at ₩3,460. On this day, VWAP was ₩6,419.









Subscription rights
Close
Volume
Value
VWAP


10/01
₩3,460
510,183
₩3,274,741,535
₩6,419

Source: KRX

This offering has a whopping 45% discount. The specific formula of how to fix the offering price is shown below.






Pricing

1st round
RP × (1 - 45%) / [1 + (1.79% × 45%)]


- Reference price (RP)
Min [Close, Avg (Close, 1W VWAP, 1M VWAP)]


- Reference date
2021. 08. 30


Ex-rights base price
[RP + (1st × 1.79%)] / (1 + 1.79%)


- Reference price (RP)
Previous close


- Reference date
2021. 09. 01



2nd round
RP × (1 - 45%)


- Reference price (RP)
Min [Close, Avg (Close, 1W VWAP)]


- Reference date
2021. 10. 18

 

Final
Min (1st, 2nd)


- Reference date
2021. 10. 18


Discount rate
45.00%


Capital increase rate
1.79%

Source: DART


The 1st round price got settled at ₩98,300, which, of course, serves as the ceiling price since whichever lower of the 1st and the 2nd will be the final price.
Of course, we don't know where and how much the 1P price will head and will get corrected before the 2nd round pricing date, which is October 18. But at the current price, we have this vast spread. If we buy subscription rights at the last close (₩3,460) and the current 1P share price holds until October 18, we will likely enjoy a 75.40% return.






Spread status

Current price
₩172,000


: 45% discount
₩94,600


Subscription rights price
₩3,460


Spread
75.40%

Source: KRX




Hyundai E&C 1P Offering: A Vast Spread, but Worth Taking the Risk?

South Korea

Hyundai Engineering & Construction Co., Ltd., a general construction company, provides civil engineering, architectural, industrial, and electrical engineering services.  The Company constructs roadways, dams, bridges, ports, industrial plants, apartment complexes, and cultural facilities.

Hyundai Engineering & Construction (000720 KS)

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Hyundai Engineering & Construction (000720 KS)

Hyundai Engineering IPO Valuation Analysis

Our target price of Hyundai Engineering Co is 67,475 won per share which is within the IPO price range of 57,900 won and 75,700 won. Given the lack...

Douglas Kim

Hyundai Engineering Pre-IPO - Unjustifiable Premium to Most Domestic Peers

Hyundai Engineering Co Ltd (HEC KS) is looking to raise up to US$1bn in its upcoming Korea IPO. In this note, we discuss peer comparison, our...

Clarence Chu

Hyundai Engineering Pre-IPO - Order Backlog Aids Visibility However, Margins Have Been Fluctuating

Hyundai Engineering Co Ltd (HEC KS) is looking to raise up to US$1bn in its upcoming Korea IPO. As per Korea Construction Association in 2021, it...

Clarence Chu

Hyundai Engineering IPO Preview

Hyundai Engineering Co Ltd is getting ready to complete its IPO in KOSPI in February 2022. The IPO price range is from 57,900 won to 75,700 won per...

Douglas Kim

Hyundai E&C 1P Offering: A Vast Spread, but Worth Taking the Risk?

This post looks at the current situation of Hyundai E&C 1P offering, which is still at a massive spread. It discusses the inherent trading risk and...

Sanghyun Park

Price Gauge

52-week Range

Market Cap (USDm)

P/E

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