Daishin Securities announced on October 14 that it expects delays in new orders for HD Construction Machinery due to high interest rates and ongoing conflicts in the Middle East stemming from the U.S.-Iran war. The firm has lowered its target price from 200,000 won to 180,000 won, a 10% reduction. However, it maintained a 'buy' rating, considering the growth potential of the construction machinery and engine sectors.
Choi Jeong-hwan, a researcher at Daishin Securities, stated, "The target price reduction reflects delays in new orders for construction machinery due to the high interest rate environment and the ongoing Middle East conflicts. Despite the lowered target price, the current stock price is at a trailing price-to-earnings ratio (PER) of 9.0 times, which we consider significantly undervalued given the growth potential of the construction machinery and engine sectors, thus we maintain our buy recommendation as the top pick in the industry."
Choi projected that the consolidated revenue for the third quarter will reach 2.292 trillion won, a 10.0% increase compared to the same period last year, while operating profit is expected to rise by 20.9% to 165 billion won. However, both revenue and operating profit are anticipated to fall short of market consensus estimates of 2.371 trillion won and 183.1 billion won, respectively.
He further explained, "The shortfall in consensus is primarily due to decreased demand for construction machinery in the Middle East and Africa as a result of the U.S.-Iran war, along with currency effects. The ongoing conflicts in the Middle East are expected to impact performance until the end of this year." Nonetheless, he noted, "Dealer inventories in North America have remained at a level of 4-5 months since the fourth quarter of last year, and robust demand in the non-residential investment sector continues in regions outside the Middle East and Africa despite the high interest rate environment."
The growth potential of the engine business is viewed positively. Choi highlighted that the gas turbine engine supply contract worth 380 billion won signed with Enchanted Rock in October demonstrates strong demand for engines aimed at data centers. He remarked, "Global engine manufacturers are unable to meet the demand for data center generator engines solely through their production capacity, leading to the current one-year supply contracts being established."
He added, "As the shortage of data centers intensifies, we expect additional supply contracts of the same nature to be signed in the future."
* This article has been translated by AI.
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