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Earnings turnaround and nuclear momentum

Nuclear momentum coming into focus

Hyundai E&C’s nuclear-related business momentum is gaining increasing attention after the company outlined opportunities across the nuclear value chain during its recent CEO Investor Day. In the US, Trump signed a series of nuclear-related executive orders, aiming to expand nuclear energy capacity from 100GW to 400GW by 2050 and shorten the permitting timeline for new projects to within 18 months. In addition, several EU countries are adopting more nuclear-friendly stances, repealing nuclear phase-out laws and emphasizing the importance of small modular reactors (SMRs). Hyundai E&C is strongly positioned in the nuclear segment, having the ability to carry out projects both through government-led (“Team Korea”) initiatives, as seen with the Barakah project in the UAE, and in partnership with leading global players such as Westinghouse and Holtec. The firm (in partnership with Westinghouse) is working to sign a deal with Bulgaria (estimated EPC value of US$5?6bn) by end-2025 and expects the Palisades SMR project in the US to make meaningful progress in 2026. For the UK SMR project, it is awaiting shortlist results as part of the Team Holtec consortium.

Earnings turnaround to materialize in 2H25

We expect Hyundai E&C to deliver visible earnings improvement in 2H25, driven by a favorable base and normalizing margins. For the full year, we look for consolidated revenue of W30.6tr (-6.3% YoY) and operating profit of W1.09tr (swinging to profit YoY). While there are lingering cost concerns related to an accident involving subsidiary Hyundai Engineering (at the Sejong?Anseong expressway construction site), we believe the company remains on track to deliver full-year operating profit of more than W1tr. The firm may lag behind peers in terms of cost ratio improvement due to its larger exposure to low-margin projects from 2021?22. However, we believe the project mix is gradually improving thanks to progress in semi-in-house projects (including the CJ Gayang-dong development project).

Raise TP to W73,000; retain as our top pick

We maintain our Buy rating on Hyundai E&C and continue to recommend the stock as our top pick in the construction sector. We raise our target price to W73,000 (from W50,000), as we lifted our target P/B to 0.96x (from 0.66x). Our target multiple is based on the average P/B in 2015?16 (when operating profit exceeded W1tr), with a 20% premium added to reflect the growing visibility of the company’s overseas nuclear value chain. Despite the stock’s recent rally, we believe it is too early to call a peak, especially in light of the multiple expansion typically enjoyed by construction firms with strong overseas growth visibility. Notably, most global nuclear/construction-related stocks are trading at P/Bs of more than 1x.