이 기사는 2021년 12월 15일 08:10 thebell 에 표출된 기사입니다.

Hyundai Engineering has included highly valued foreign engineering design firms among its listed peers to determine the value of the company ahead of a planned initial public offering next year, although the South Korean company now earns more revenue from housing construction than plant engineering.

A total of 12 companies have been selected as Hyundai Engineering’s comparables for the IPO valuation, according to its registration statement filed with the Financial Services Commission of Korea.

Three of them – Samsung Engineering, GS E&C and Daewoo E&C – were domestic publicly-traded companies while the remaining nine were foreign listed companies, including Dallas-based Jacobs Engineering Group, Los Angeles-based AECOM and Canadian engineering firm WSP Global.

Hyundai Engineering used an enterprise value-to-earnings before interest, taxes, depreciation and amortization (EV/EBITDA) multiple to value the company.

It is notable is that the average EV/EBITDA multiple of its foreign peers from the engineering design sector was over 20 times, compared with its domestic peers with EV/EBTIDA multiples ranging from only three to six times.

Based on the average EV/EBTIDA multiple of 11.64 times for the 12 comparables and the third-quarter annualized EBITDA of 433.6 billion won ($366.4 million), Hyundai Engineering’s EV is estimated to be slightly over 5 trillion won.

Given negative net debt of 1.8 trillion won and 230 billion won worth of new shares expected to be issued in the offering, the company’s equity value is roughly estimated to be 7.1 trillion won, which will be reduced to between 4.6 trillion won and 6 trillion won after applying a 14.9-34.91% IPO discount.

The three North American companies selected as Hyundai Engineering’s peers are among top design firms on lists published by US industry magazine Engineering News-Record (ENR). Jacobs, AECOM and WSP Global ranked first, second and seventh respectively on ENR’s 2021 list compiled based on revenue for design service.

What is interesting is that Hyundai Engineering was classified as an international contractor by ENR in the past three years, ranking between 38th and 40th in the field. It had been included in the magazine’s design firm ranking until 2018, but not anymore.

This coincided with a change in the company’s revenue composition in recent years. After a merger with Hyundai Amco in 2014, its revenue proportion from domestic construction and housing increased to 45.7% this year, exceeding revenue contribution from its plant engineering business (42.2%) for the first time.

Hyundai Engineering said in its registration statement that the company’s organizational structure is optimized for its core engineering business. It also mentioned the company has an engineering center, with engineering design workers accounting for about 30% of its full-time employees.

Assuming that the three top foreign design firms are excluded from the company’s peers, the average EV/EBITDA multiple would decline to nine times, pushing down an equity value estimate to a range of between 3.9 trillion won and 5 trillion won after a discount.

This would have a direct impact on how much Chung Mong-koo, honorary chairman of Hyundai Motor Group, and his son Chung Eui-sun, the conglomerate’s chairman, can raise through the offering. They will sell some 1.42 million and 5.34 million shares in Hyundai Engineering, respectively, in the IPO.

If the company is valued at the upper end of the price band of 57,900 won to 75,700 won per share, senior and junior Chung could together earn as much as 500 billion won. Other existing shareholders who will sell part of their stakes in the IPO include Hyundai Glovis, Kia Corp and Hyundai Mobis. (Reporting by Min-kyu Sin)