Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

<ul><li>We are bullish on Hyundai Electric &amp; Energy Systems (Hyundai E&amp;E). Hyundai Robotics has a 13.37% stake of Hyundai E&amp;E, which will start trading on May 10th. Our base case valuation is 1.0 trillion won for Hyundai E&amp;E, which is 63% higherthan the Hyundai E&amp;E's spin-off ratio value of 612 billion won (0.04882 x 12.54 trillion won - market cap of Hyundai Heavy Industries prior to the 4 way split-off).</li><li>If we assume a 1 trillion won equity value for Hyundai E&amp;E, this would represent 0.5x P/S and 11x P/E (using estimated net profit of 92 billion won in 2016). These valuation multiples look quite reasonable, given that LS Industrial Systems and Hyosung have an average P/S multiple of 0.5x and average P/E multple of 13.6x.</li><li>Using average estimated EBITDA of 278 billion won in 2015 and 2016 for Hyundai E&amp;E, the estimated 1 trillion won in implied market cap of Hyundai E&amp;E results in an EV of 1,487 billion won for the company and EV/EBITDA multiple of 5.3x. This is lower than the average EV/EBITDA multiple of 6.4x for its comps (using average EBITDA in 2015 and 2016). Hence, the EV/EBITDA valuation method also gives us comfort in the implied equity valuation of 1.0 trillion won for Hyundai E&amp;E.</li><li>Hyundai E&amp;E's key products including transformers, switchgear, and power electronics &amp; control systems are all important components of various machines and industrial equipment. Having high quality transformers helps to save electricity costs. With increased advancement in technology, artificial intelligence, autonomous machinery, the company's products will play important role in connecting various types of industrial machinery.</li></ul>

We are bullish on Hyundai Electric &amp; Energy Systems (Hyundai E&amp;E). Hyundai Robotics has a 13.37% stake of Hyundai E&amp;E, which will start trading on May 10th. Our base case valuation is 1.0 trillion won for Hyundai E&amp;E, which is 63% higherthan the Hyundai E&amp;E's spin-off ratio value of 612 billion won (0.04882 x 12.54 trillion won - market cap of Hyundai Heavy Industries prior to the 4 way split-off).If we assume a 1 trillion won equity value for Hyundai E&amp;E, this would represent 0.5x P/S and 11x P/E (using estimated net profit of 92 billion won in 2016). These valuation multiples look quite reasonable, given that LS Industrial Systems and Hyosung have an average P/S multiple of 0.5x and average P/E multple of 13.6x.Using average estimated EBITDA of 278 billion won in 2015 and 2016 for Hyundai E&amp;E, the estimated 1 trillion won in implied market cap of Hyundai E&amp;E results in an EV of 1,487 billion won for the company and EV/EBITDA multiple of 5.3x. This is lower than the average EV/EBITDA multiple of 6.4x for its comps (using average EBITDA in 2015 and 2016). Hence, the EV/EBITDA valuation method also gives us comfort in the implied equity valuation of 1.0 trillion won for Hyundai E&amp;E.Hyundai E&amp;E's key products including transformers, switchgear, and power electronics &amp; control systems are all important components of various machines and industrial equipment. Having high quality transformers helps to save electricity costs. With increased advancement in technology, artificial intelligence, autonomous machinery, the company's products will play important role in connecting various types of industrial machinery.

Hyundai Electric & Energy Systems Spin-Off: A Deeper Look at Its Valuations

South Korea

Hyundai Electric & Energy Systems (HE&E), which makes various electric equipment including transformers, switchgear, motors, low & medium voltage circuit breakers, power electronics, and power electronics & control systems.

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Hyundai Electric & Energy (267260 KS)

Hyundai Electric & Energy Systems Spin-Off: A Deeper Look at Its Valuations

We are bullish on Hyundai Electric & Energy Systems (Hyundai E&E). Hyundai Robotics has a 13.37% stake of Hyundai E&E, which will...

Douglas Kim

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