[Click eStock] "Daewoo Construction, Domestic Sales Stable but Overseas Orders Weak... Target Price Down"

[Asia Economy Reporter Eunmo Koo] Shinhan Financial Investment has downgraded the target price of Daewoo Engineering & Construction to 2,800 KRW, stating that domestic pre-sales were favorable but overseas orders were sluggish.

Daewoo Engineering & Construction planned the largest pre-sales among domestic construction companies this year (35,000 units), but the first half pre-sales (13,593 units) were somewhat sluggish. Researcher Hyunwook Kim of Shinhan Financial Investment explained in a report on the 29th, “However, with 9,400 units pre-sold in the third quarter, the pace accelerated, and the cumulative total reached 22,991 units, already surpassing last year’s volume, making it possible to achieve the annual target.” However, overseas orders in the second half are still expected to be sluggish. Researcher Kim stated, “Most overseas orders were delayed to next year as of the second quarter earnings announcement, and the Al Faw Terminal (USD 500 million), which was likely to be additionally ordered, is understood to be undergoing prolonged internal review.”

Third-quarter sales this year are estimated at 2 trillion KRW, down 1.8% from the same period last year, and operating profit is estimated at 101.2 billion KRW, down 15.0%. Overseas, additional costs occurred at civil engineering sites in India and Singapore and plant sites in Kuwait in the second quarter. Researcher Kim said, “At that time, conservative cost reflection (India in Q3, Singapore in Q4) means the possibility of large additional costs in Q3 is low, but due to the prolonged COVID-19 pandemic, the profitability of civil engineering (100%) and plants (96%) in Q3 was estimated conservatively.” He added, “Domestically, some sites were delayed due to a somewhat prolonged rainy season, causing rush costs, but it is understood that this will not affect profitability, so solid performance is expected in Q3 as well.”

The target price was lowered to 2,800 KRW. Researcher Kim said, “Further declines will be limited from the current stock price, which has fallen to the level seen at the early stage of COVID-19,” but added, “Daewoo Engineering & Construction’s overseas sites have a high proportion in Africa, the Middle East, and Asian countries, so meaningful stock price rebounds will be difficult until overseas uncertainties ease due to the prolonged COVID-19 pandemic.”

However, Researcher Kim also noted, “Changes within the company, such as business expansion through subsidiary mergers and investment in electric vehicle infrastructure, are underway, and there are many positive factors for future performance, including expanded pre-sales in 2020, apartment pre-sales in Vietnam at year-end, and self-developed projects worth 3.7 trillion KRW in 2021. Once overseas concerns ease, the stock will exhibit extreme undervaluation appeal.”