이 기사는 2021년 07월 26일 08:04 thebell 에 표출된 기사입니다.

Hyundai Oilbank has restarted a process to go public on the South Korean stock exchange with a target of listing in the first half of next year. But the difference in valuation expectations between the company and investors could increase the uncertainty about the success of the listing.

It is a broadly shared view among bankers that Hyundai Oilbank’s valuation will be less based on subjective assumptions compared to those of companies in emerging industries such as electric vehicles and biotech pharmaceuticals. The traditional oil refining is the company’s core business, and Hyundai Oilbank and other three refiners maintain an oligopoly in the country’s refining industry.

Hyundai Oilbank held a 20.9% market share last year, after SK Innovation (29.9%), S-Oil (24%) and GS Caltex (23.6%). Among its three rivals, SK Innovation and S-Oil are listed on Kospi.

S-Oil is more comparable with the company than SK Innovation in terms of size and market share. S-Oil reported an operating profit of 629.2 billion won ($546.8 million) on revenue of 5.35 trillion won in the first quarter this year, versus Hyundai Oilbank’s operating profit of 412.8 billion won on revenue of 4.54 trillion won in the same period. S-Oil’s refining business accounted for 73% of its total revenue, similar to 74% for Hyundai Oilbank.

SK Innovation, which is SK Group’s energy holding company, is less likely to be considered as a peer as a sizable portion of the company’s revenue comes from its electric battery and materials businesses as well as refining. SK Innovation also has a market capitalization of around 23 trillion won, more than twice that of S-Oil.

Bankers are likely to use S-Oil’s price-to-earnings (P/E) ratio as a reference to estimate Hyundai Oilbank’s value.

S-Oil trades at a trailing P/E ratio of 24.79 based on its most recent trailing twelve-month net profit of 429.2 billion won and Wednesday’s closing price. Hyundai Oilbank’s value is estimated to be 7.34 trillion won based on its trailing twelve-month earnings and S-Oil’s trailing P/E ratio.

On a forward basis, the P/E ratio substantially declines due to an earnings recovery from the Covid-19 pandemic in the overall refining industry.

S-Oil’s 2021 earnings estimate – simply calculated as the first-quarter net profit multiplied by four – is 1.38 trillion won, which represents a forward P/E ratio of 7.72. Based on this P/E ratio and Hyundai Oilbank’s estimated 2021 net profit of 774.5 billion won, its value is estimated to be 5.98 trillion won.

Lofty IPO target

The problem is Hyundai Oilbank needs to set its valuation at trillions of won higher than 8 trillion won, at which it raised money from Aramco. In 2019, the Saudi oil giant bought 17% of Hyundai Oilbank for about 1.38 trillion won. The IPO price needs to value the company at 8 trillion won plus several trillions of won to make Aramco’s investment profitable.

Hyundai Oilbank relies on its new businesses to narrow the valuation gap. In March this year, the company announced Vision 2030 to reduce its revenue reliance on refining and increase an operating profit from future growth drivers – including white biotechnology, eco-friendly chemical materials and low-carbon blue hydrogen – to 70% of the total by 2030. It also decided to sell 90% of its oil storage business to J& Private Equity for 180 billion won earlier this month to use the proceeds for new business opportunities.

The IPO’s success is likely to depend on whether Hyundai Oilbank can show investors that its new businesses will drive future revenue growth.

“We have been stepping up efforts to secure new future growth engines and also successfully issued ESG bonds in the first half of this year,” said an official at Hyundai Oilbank. “We expect to share the progress of our new businesses with investors in the first half of next year.” (Reporting by Kyung-ju Lee)