SIMIC

 HHI Holdings’ equity value for its subsidiaries divides as refinery 59%, shipbuilding 35%, and offshore/ship services 6%. Versus competitors, HHI Holdings trades at a higher discount rate to NAV, offering more attractive valuations. Moving ahead, the firm is to benefit from an oil price recovery and the recent signing of an MOA for LNG carrier orders from Qatar.

Initiate coverage on HHI Holdings; discount rate excessive; shares undervalued vs rivals

We initiate coverage on Hyundai Heavy Industries Holdings (HHI Holdings) with a Buy rating and a SOTP-derived TP of W352,500.

Trading at a high discount rate (37.6%) to NAV, HHI Holdings’ shares appear undervalued versus the peer averages for both refineries (P/B of 0.96x) and other industrial players (shipbuilding: 0.7x; machinery: 0.85x).

Expect earnings turnarounds at Hyundai Oilbank and KSOE; secures Qatar LNG carrier orders

HHI Holdings’ equity value for its subsidiaries divides as: 1) Hyundai Oilbank and its subsidiaries 59%; 2) Korea Shipbuilding & Marine & Hyundai Global Service 35%; 3) and other (including offshore/ship services) 6%.

Earnings at the firm’s oil refining business are primed to turn around in 2Q20 in line with a rebound in oil prices. Earnings and valuations improvement should also be seen for HHI Holdings’ shipbuilding and offshore businesses in the wake of news that it has signed an MOA for LNG carrier orders from Qatar.

Boasts global-top shipbuilding order backlog and competitiveness and highest domestic refinery facility upgrade rate

The HHI Group’s combined order backlog is estimated to be the world’s largest in terms of value. The recently signed Qatar-Korea LNG carrier order MOA carries orders worth more than US$60bn over the next five years.

Possessing the highest facility upgrading ratio in Korea, Hyundai Oil Bank and its subsidiaries boast better cost competitiveness than their rivals. Moving ahead, we expect HHI Holdings’ refinery arm to enjoy steady earnings growth in response to the acquisition of new facilities and the expansion of existing facilities.