On Tuesday, JPMorgan increased the price target on Hyundai Heavy Industries (KS:009540) (329180:KS), a major player in the shipbuilding industry, to KRW 370,000 from the previous KRW 260,000, while maintaining an Overweight rating on the company's shares.
In the past 12 months, Hyundai Heavy Industries has notably outperformed the Korea Composite Stock Price Index (KOSPI), with its share price soaring by 160%, compared to the KOSPI's slight decline of 1%. The analyst attributed this impressive performance to a combination of factors, including robust orders for commercial vessels and a positive shift in revenue and profit. Additionally, heightened market expectations for the company's defense business have contributed to the stock's rally.
The analyst pointed out that the potential for maintenance, repair, and overhaul (MRO) services in the defense sector, particularly with the United States, began to take shape last year. Moreover, there are rising prospects for the company in naval shipbuilding, as the U.S. Navy looks to expand its fleet and faces various challenges. The mention of increased reliance on allies by former President Trump has also played a role in shaping these expectations.
While the initial impact on Hyundai Heavy Industries' revenue and profits from the defense sector is expected to be modest, JPMorgan's analysis indicates that there is significant potential for this segment to provide a stable counterbalance to the cyclical nature of the shipbuilding business. The valuation reflects this potential by applying a mid-cycle multiple of 0.5 times to the company's order book, leading to the raised price target and a continued Overweight rating.
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