HD Construction Equipment's credit outlook upgraded six months after merger

Korea's two major credit rating agencies have raised their outlooks on HD Construction Equipment to positive, citing improved business stability from the merger and a broad recovery in infrastructure investment markets

HD Construction Equipment hosts the "Operator Challenge" at ConExpo 2026, North America's largest construction equipment exhibition, in Las Vegas. [HD Construction Equipment]

By Park Hye-won, The Herald Business

Market sentiment toward HD Construction Equipment is improving six months after the company's launch. The newly merged firm is leveraging economies of scale to offset the volatility that has long plagued the construction equipment industry, aided by a broad recovery in infrastructure investment.

Korea Ratings raised its unsecured bond rating on HD Construction Equipment from A/stable to A/positive on Friday, according to industry sources. NICE Investors Service also kept its long-term credit rating at A while upgrading its outlook from stable to positive.

HD Construction Equipment launched in January when HD Hyundai Construction Equipment absorbed HD Hyundai Infracore, uniting two affiliates that had operated in the same group's construction equipment business. The combined entity now has domestic production bases in Ulsan, Incheon and Gunsan, as well as overseas facilities in China, Brazil and Norway, making it a company with 8 trillion won (approximately $5.24 billion) in annual sales.

The rating agencies highlighted that the merger has addressed a longstanding weakness. Construction equipment companies have historically been highly exposed to market cycles, as demand rises and falls with the pace of infrastructure investment and is heavily influenced by global economic conditions and interest rate movements. The enlarged scale of the merged company has overcome that structural limitation.

"The merger has strengthened the company's market position and broadened its regional portfolio and product lineup, improving overall business stability," said Kim Hyun-jun, a senior analyst at Korea Ratings. "While the construction equipment industry tends to show high earnings variability depending on market conditions, the diversified regional portfolio allows different regional economic cycles to offset one another, supporting solid operating results."

Park Hyun-jun, a senior researcher at NICE Investors Service, said the merger is expected to reduce earnings volatility in the construction equipment segment while also raising the level of in-house engine production. He noted that synergies between HD Hyundai Infracore's engine business and HD Hyundai Construction Equipment could push the share of proprietary engines installed in the company's own construction equipment to as high as 80 percent by 2030, reducing dependence on imported engines.

A 125-ton excavator made by HD Construction Equipment. [HD Hyundai Construction Equipment]

Securities analysts are also upbeat about HD Construction Equipment's second-quarter earnings. The company posted operating profit of 190.7 billion won in the first quarter, an 88 percent increase from the same period a year earlier, with growth signals evident across key markets including North America, Europe and emerging economies.

The global construction industry, which endured a prolonged downturn, is now entering a recovery phase. Chae Un-saem, a researcher at Hana Securities, said the construction equipment segment is expected to grow year-on-year across all regions. "Europe is expected to lead growth, while the US market should see continued expansion in sales to Latin American resource-producing countries and sustained infrastructure investment demand, despite tariff uncertainty," Chae said. Infrastructure investment has been picking up in Europe, a core market for the company, while Latin America is seeing a surge in mining development projects.

US tariffs, initially viewed as a headwind, are being offset through price increases. The United States imposed 50 percent tariffs on steel and aluminum last year. "After a period of restraint on price increases toward the end of 2025, the industry has broadly shifted to raising prices, gradually reducing the tariff burden," said Lee Dong-heon, a researcher at Shinhan Investment.

The data center industry is also emerging as a new source of revenue. Data center operators have recently been turning to marine and defense-sector engines to meet surging power demands from AI infrastructure.

HD Construction Equipment plans to produce oversized engines for AI data centers at a new factory in North Jeolla Province, targeted for completion in the second half of this year. The company has also raised its target for generator-related sales from 37 billion won last year to 800 billion won by 2030. "Data center investment is expanding in North America, driving a structural increase in demand for emergency power generation engines — a trend from which the company stands to benefit," said Lee Han-gyeol, a researcher at Kiwoom Securities.

klee@heraldcorp.com