[Edaily Marketin Reporter LEE GEON-EOM ] Korea Ratings (KRA) announced on the 5th that it had upgraded the credit rating on HD Hyundai Construction Equipment(267270)’s unsecured corporate bonds from ‘A (Positive)’ to ‘A+ (Stable).’ It also assigned a new credit rating of A2+ to the company’s commercial paper (CP). On the same day, Korea Ratings Corporation(034950)(Korea Ratings) also raised the credit rating on HD Construction Equipment’s unsecured bonds by one notch to “A+ (Stable)” and assigned a rating of A2+ to its commercial paper.

The rating upgrade for HD Construction Equipment is the result of increased business stability following the absorption-type merger with HD HYUNDAI Infrastructure & Core last January. Korea Ratings also determined that the merger strengthened the company’s business scale and market position while broadening its regional portfolio and product lineup. The company’s global ranking by construction machinery sales rose from around 25th to 15th (with a 2.3% market share), and it has secured a leading position in certain Shinhung markets such as Brazil, India, and Africa, according to the agency.

Profitability has also improved significantly. HD Construction Equipment’s preliminary cumulative revenue for the first three quarters of this year was 6.8305 trillion won, with operating profit of 597.3 billion won, resulting in an operating profit margin of 8.7%. This exceeds the operating profit margins projected for the two companies based on a simple sum prior to the merger (5% in 2024 and 5.5% in 2025).

The expansion of the profit base was driven by the engine division. Driven by growing demand for industrial engines during the same period, the engine division’s revenue rose 12.6% year-over-year to 1.1162 trillion won, with an operating profit margin of 14.5%. Last month, the company completed construction of its new plant in Gunsan and signed a 387.9 billion won contract with Enchanted Rock in the U.S. to supply engines for gas-fired power generation, thereby securing a portion of its order volume for 2027–2028.

Financial stability has also improved. As of the end of September, on a consolidated basis, the debt-to-equity ratio stood at 85.5%, the debt dependency ratio at 20.3%, and the EBITDA-to-total-debt ratio at 1.7x. Han Shin Rating assessed that, given the company’s ability to generate annual EBITDA of around 1 trillion won, the burdens of capital expenditures and working capital remain at manageable levels.

However, performance in the construction equipment division slowed somewhat in the third quarter. This was due to a combination of the seasonal off-peak period, logistics disruptions caused by the prolonged war in the Middle East, and the strengthening of the Korean won. Han Shin Rating viewed the impact of external factors as greater than that of a structural weakening in demand.

Han Ki-pyeong also cited the enhanced business stability resulting from the merger as a key factor for the upward revision. The analysis indicates that the highly profitable engine and after-sales service businesses—which generate more than half of the company’s total operating profit—are mitigating the volatility in the performance of the main equipment business.

Cumulative quarterly revenue and operating profit increased by 15.0% and 66.5%, respectively, compared to the pro forma results for the same period last year, assuming the merger had already taken place. Shin Jung-hak, a senior researcher at Korea Ratings, stated, “Based on its enhanced operating cash generation capacity, the company will likely be able to cover a significant portion of its investment-related funding needs internally.”

Senior Researcher Shin added, “While working capital burdens resulting from business expansion and annual capital expenditures of around 400 billion won are expected to persist, we believe the company will be able to cover a significant portion of these funding needs internally based on its improved operating cash flow generation.” He further projected, “Based on its expanded profit-generating capacity and strong financial buffers, the company will maintain excellent financial stability while managing its debt burden.”