KOREA WHO

Chung Kyung-ku, CEO-designate of HDC Hyundai Development Company.

HDC Hyundai Development Company is on the verge of selling out Seoul One I-Park, a residential development in Wolgye-dong, Nowon-gu, Seoul, despite initial concerns over high selling prices.

Chung Kyung-ku, who is set to become the CEO of HDC Hyundai Development Company, is drawing attention for his ability to achieve a double-digit operating profit margin and elevate the company’s profitability to the highest level in the construction industry by leveraging in-house projects, including Seoul One I-Park.

According to Korea Real Estate Agency’s Cheongyak Home on April 6, HDC Hyundai Development Company will announce the results of its allocation for voluntary subscription applications for Seoul One I-Park on April 7. The contract signing will take place on April 10.

On April 4, the company received 502 applications for the 99 units available in the voluntary supply, significantly exceeding the allocation.

Excluding the voluntary supply units, 1,757 out of 1,856 general sales units have already been sold, bringing the contract rate to 94.7%.

Given the high competition rate for the voluntary supply units, the project is now close to selling out. Considering the initial concerns over contract rates, the result is seen as exceeding expectations.

Seoul One I-Park initially faced concerns due to its record-high selling price for the northeastern region, its location in an outer area rather than a prime district in Seoul, and a large proportion of mid-to-large unit sizes.

The sale price of Seoul One I-Park ranges from KRW 1.262 billion to KRW 1.414 billion (US$910,100 to US$1.02 million) for an 84㎡ unit. This is significantly higher than the maximum price of KRW 1.211 billion (US$873,400) for an 84㎡ unit at Prugio Radius Park in Jangwi-dong, Seongbuk-gu, which was sold four months earlier, making it the highest selling price in Seoul’s northeastern region.

Of the 1,856 units at Seoul One I-Park, 48% (892 units) are mid-to-large-sized, exceeding 100㎡.

Despite these unfavorable conditions, HDC Hyundai Development Company had already reached its internal target contract rate of 95% for Seoul One I-Park by the end of March.

For CEO Chung Kyung-ku, who is in his first year of tenure, the contract rate for Seoul One I-Park is a key factor influencing the company’s financial performance for the year.

HDC Hyundai Development Company recognizes sales revenue for units sold before the first interim payment, which was due on March 31. Units sold after this date will be recognized as revenue upon completion in 2028.

Since the company has achieved its initial contract rate target, the likelihood of meeting its financial goals for the year has increased.

Seoul One I-Park, a core project for HDC Hyundai Development Company, is considered a key factor behind CEO Chung’s confidence in achieving strong financial results this year.

The company has set a consolidated revenue target of KRW 4.3059 trillion (US$3.1 billion) for 2024, a 2.2% increase from last year’s estimated revenue of KRW 4.2114 trillion (US$3.04 billion).

Among publicly listed construction companies that have announced their financial plans, HDC Hyundai Development Company is the only one forecasting revenue growth compared to last year’s estimated results, according to the Financial Supervisory Service’s electronic disclosure system.

As most construction firms have adopted a conservative approach due to deteriorating market conditions, many have reduced new project starts, leading to concerns about declining revenues. However, HDC Hyundai Development Company stands out by bucking this trend, largely due to Seoul One I-Park.

Jang Yoon-seok, an analyst at Yuanta Securities, stated, “One of the main trends in the construction industry this year is revenue contraction. Among the construction companies we analyze, all except HDC Hyundai Development Company have projected lower revenue for 2024 compared to last year.”

There is speculation that CEO Chung will use in-house projects, including Seoul One I-Park, as a foundation to not only drive revenue growth but also restore the company’s profitability to the peak levels seen between 2018 and 2020, when HDC Hyundai Development Company maintained an operating profit margin of over 10%.

Beyond Seoul One I-Park, the company expects revenue contributions from various in-house projects, including Suwon I-Park City Blocks 11 and 12, which are nearing occupancy, as well as ongoing projects such as Cheongju Gagyeong I-Park Phase 6 and Seosan Central I-Park.

HDC Hyundai Development Company has already seen positive financial impacts from Seoul One I-Park, which broke ground in November 2023, with both revenue and profitability improving in the fourth quarter of the same year. This trend provides insights into the potential financial benefits of expanding in-house projects.

Lee Tae-hwan, an analyst at Daishin Securities, commented, “In the fourth quarter of last year, revenue from in-house projects, primarily Suwon I-Park City Block 10 and Seoul One I-Park, increased by 113% from the previous quarter, reaching KRW 186.3 billion (US$134.4 million). The cost ratio was also strong at 71%, demonstrating solid profitability.”

HDC Hyundai Development Company appears to have moved past the financial impact of major accidents in 2021 and 2022. However, last year’s estimated operating profit margin was 4.3%, still below its peak levels.

The company’s consolidated operating profit margins were 11.4% in 2018, 13.0% in 2019, and 16.0% in 2020.

In 2020, the profitability of in-house projects significantly contributed to overall performance, with projects such as Daejeon I-Park City and Suwon Yeongtong I-Park Castle Block 3 achieving a gross profit margin of 21.3% in the first quarter and around 33% in the following quarters.

At that time, even general housing construction projects had a gross profit margin of around 20%. However, due to rising construction costs, the gross profit margin of outsourced housing projects has now fallen to single digits, making in-house projects even more crucial.

The securities industry predicts that during CEO Chung’s tenure, HDC Hyundai Development Company will achieve an industry-leading operating profit margin of nearly 10%.

According to financial data provider FNGuide, HDC Hyundai Development Company’s projected financials for 2024 include a consolidated revenue of KRW 4.3761 trillion (US$3.15 billion) and an operating profit of KRW 330.7 billion (US$238.4 million). For 2025, revenue is expected to reach KRW 4.7866 trillion (US$3.45 billion), with an operating profit of KRW 450.5 billion (US$324.8 million).

The operating profit margin is projected to reach 7.6% in 2024 while site preparation for Seoul One I-Park is underway. As construction progresses, it is expected to rise to 9.4% in 2025, making it the highest among major publicly listed construction companies.

CEO Chung will officially be appointed at the 7th Annual General Meeting of HDC Hyundai Development Company and board meeting on March 26. His two-year term will last until March 2027.

Recommending Chung as an internal director, the board of HDC Hyundai Development Company stated, “With his experience as CEO of HDC, head of the management division at HDC Hyundai Development Company, and expertise in finance, accounting, new business, and M&A, he is expected to enhance the company’s construction and development capabilities and lead its future growth.”

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