[Click eStock] "DL E&C, Operational Value Reassessment Expected with Construction Business Restructuring"

Shinyoung Securities Report
Target Price Set at 160,000 Won

[Asia Economy Reporter Minji Lee] Shin Young Securities on the 22nd gave a buy rating and a target price of 160,000 KRW for DL E&C. DL E&C consists of the construction divisions of the former Daelim Industrial, including housing, civil engineering, and plants, as well as Daelim Construction (Samho·Goryeo Development) and overseas subsidiaries.

DL E&C's estimated sales for this year are 8.8705 trillion KRW, operating profit is 1.0502 trillion KRW, and controlling net profit is estimated at 624.7 billion KRW. The market capitalization after the split is 1.6968 trillion KRW, with a price-to-earnings ratio (PER) of about 2.6 times.

Following the split, DL E&C is reorganized solely as a construction business, which is expected to remove the discount factors previously applied as a conglomerate and simultaneously lead to a revaluation of its operating value. Currently, the company shows strengths in trust and REITs construction sectors, having secured more than half of the 14 project districts supplied by LH through housing development REITs until 2019, demonstrating a unique competitive advantage.

There is also a difference between the number of housing units started and those sold. Based on DL E&C's stake, the number of sold units in 2018, 2019, and last year were 8,032 units, 11,856 units, and 8,554 units respectively, but when converted to units started, the numbers are significantly higher at 13,192 units, 20,220 units, and 16,227 units. Researcher Sera Park from Shin Young Securities said, "This is due to an increase in the proportion of rental housing and post-sale units, which is expected to lead to a rebound in sales in the housing business sector this year."

It is also positive that DL E&C holds a competitive edge in government-led housing supply projects. Researcher Sera Park explained, "With the increase in units started, a rebound in housing sales is expected this year, and Daelim Construction's sold units are also expected to increase from 3,060 units last year to 9,000 units this year," adding, "This will allow securing a sales pipeline through 2023."