[Click eStock] "Daewoo Construction, Strong Q1 Performance Expected Mainly in Housing"

Hana Financial Investment Report

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained its buy rating and target price of 7,700 KRW for Daewoo Engineering & Construction on the 8th. This is based on the expectation of stable sales growth driven by the domestic housing business in the first half of the year.

In the first quarter, Daewoo Engineering & Construction is estimated to have recorded sales of 2.1354 trillion KRW and operating profit of 161.4 billion KRW, representing increases of 8% and 34% respectively compared to the previous year. The operating profit is about 10% above market expectations. Seunghyun Yoon, a researcher at Hana Financial Investment, said, "Housing pre-sales in 2019 reached 21,000 units, an 80% increase compared to 2018, so stable performance contributions are expected from the first quarter."

Regarding overseas projects, the Iraq Al-Faw Port project (order backlog of 2.9 trillion KRW) secured at the end of last year is expected to gradually generate sales from the second half of the year. The Nigeria and Mozambique LNG plants are also expected to have limited contribution to first-half performance, considering about a one-year design period. Sales from Vietnam THT, which contributed to the profit surprise in the fourth quarter of last year, are expected to recognize 70 billion KRW from remaining apartment sales in the first half and 200 billion KRW from villa sales in the second half.

The number of housing units pre-sold in the first quarter is estimated to be about 4,000 units. Considering that the initial plan was 5,000 units for the first quarter, about 1,000 units appear to have been postponed to April. Housing pre-sales are expected to be concentrated in the second and third quarters, and given the recent housing market conditions, the annual housing supply target is expected to be achieved without difficulty.

Researcher Yoon said, "Supplying 35,000 housing units annually for two consecutive years indicates external growth for the next two to three years, which is positive," and added, "For self-developed pre-sale projects, 4,100 units are expected to be sold in the second half as originally scheduled (Busan Beomil, Yangju Station area, Suwon Mangpo)."

He continued, "In the second half, sales from 14,000 units pre-sold in the first half of last year will begin in earnest, accelerating the growth rate of housing sales," and "Including overseas projects, the company's full-year performance is expected to show a pattern of lower first half and stronger second half."