[Click eStock] "Samsung Engineering, Overseas Order Performance Expected to Recover in Second Half"

Yujin Investment & Securities Report
"Positive Outlook on FEED Project EPC Contract Conversion"

[Asia Economy Reporter Minji Lee] Eugene Investment & Securities on the 24th issued a forecast regarding Samsung Engineering, stating that although overseas orders have been delayed due to the impact of the novel coronavirus disease (COVID-19), orders are expected to recover in the second half of the year. Accordingly, they maintained a buy investment rating and a target price of 15,000 KRW.

Samsung Engineering's new orders in the first half amounted to 1.9 trillion KRW, underperforming compared to the market's forecast of 10.5 trillion KRW. This was because orders in the petrochemical sector were only 200 billion KRW due to COVID-19 and low oil prices.

However, overseas order performance is expected to show signs of recovery starting next month. As oil prices have stabilized in the $40 range, clients are pushing projects forward in the form of small-scale early works rather than canceling them.

Researcher Yeolmae Kim of Eugene Investment & Securities projected, "Among the projects for which Samsung Engineering performed FEED (Front-End Engineering & Design), there is a high possibility of EPC order conversion for the Dos Bocas refinery in Mexico (over $2.6 billion) and the Sarawak methanol project in Malaysia (approximately $1 billion)."

Samsung Engineering is expanding FEED and promoting orders that link FEED to EPC main contracts to reduce EPC profit volatility and enhance cost competitiveness. In the first half, it participated in 10 FEED orders and secured the Malaysia onshore gas FEED order. It is expected to actively participate in FEED orders in the second half as well, performing about 20 FEED projects this year.

Researcher Yeolmae Kim said, "It is positive in that, during the order slump phase, Samsung Engineering can strengthen the capabilities of excellent engineers while reducing cost burdens, thereby building a mid- to long-term order pipeline."

She added, "Although there are risks to overseas segment performance due to the prolonged COVID-19 situation, cost increases are reflected each quarter, so this is believed to have already been factored into the stock price," and analyzed, "Since additional costs have occurred due to the COVID-19 situation, partial reimbursement is expected to be possible through negotiations with clients."