On Tuesday, BofA Securities raised its stance on Hyundai (OTC:HYMTF) Mipo Dockyard Co Ltd (010620:KS) stock, shifting from a Neutral to a Buy rating. The firm also significantly increased the price target for the South Korean shipbuilder, setting it at KRW140,000, up from the previous KRW80,000.
The upgrade comes after a reassessment of the company's prospects, with BofA Securities citing several key factors for the positive outlook. The analyst pointed to an increased backlog projection, which is now expected to reach $11 billion over the years 2024 to 2026, a substantial rise from the former estimate of $6 billion. Additionally, the firm anticipates a hike in newbuild prices and a turnaround in earnings for Hyundai Mipo Dockyard.
The company's stock has seen a recent expansion in its price-to-book value (PBV), now trading at 2.0 times versus a 3-year forward return on equity (ROE) of 12%. This change is attributed to the robust order rate in the first half of 2024. However, it was noted that the company's valuations have historically aligned more closely with Medium Range (MR) tanker prices, which exhibit an 81% correlation, rather than trailing earnings per share (EPS).
Looking ahead, BofA Securities anticipates that strong MR tanker prices, which are forecasted to reach $57.7 million by the end of 2025 compared to the current $52.0 million, will continue to drive interest in Hyundai Mipo Dockyard's stock. This is expected to lead to a further re-rating of the stock in the second half of 2024 through to 2025.
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