[Click eStock] "Daewoo Construction, Limited Impact from Raw Material Price Surge"…Target Price Up

[Asia Economy Reporter Ji Yeon-jin] Kiwoom Securities announced on the 28th that it has raised the target stock price of Daewoo Construction to 8,800 KRW, as the company's Q1 earnings exceeded expectations and the impact of raw material price surges is expected to be limited.

Daewoo Construction's consolidated operating profit for Q1 this year was 221.3 billion KRW, a 3.5% decrease compared to the same period last year, but significantly exceeded market expectations. Although operating profit declined due to a low base effect in the housing construction and plant sectors, it is analyzed that profitability improved with cost reduction and cost ratio improvement effects in housing construction amounting to 23 billion KRW, and a one-time expense of 32 billion KRW in the plant sector.

Researcher Cho Young-hwan of Kiwoom Securities stated, "The impact of raw material price increases has been partially observed, but even excluding one-time effects in the housing construction sector, it is judged that the usual cost of sales ratio rose by about 1%." He added, "Concerns about declining housing profitability due to raw material price increases remain in Q2, but since some projects are expected to increase construction costs in response to material price hikes, the related impact is not expected to be as severe as feared."

Additionally, the civil engineering and plant sectors are showing signs of profitability improvement as the sales proportion of highly profitable projects such as the Iraq New Port, Iraq Al-Faw, and Nigeria LNG7 gradually increases. Although there were no visible overseas orders in Q1, this year, the order pipeline focusing on key countries with high profitability (negotiated contracts) such as Nigeria Indorama 3 (500 billion KRW), Iraq Al-Faw (600 billion KRW), and Libya Power Plant (200 billion KRW) is attracting attention.

Researcher Cho predicted, "The Vietnam THT Hanoi New City development project is expected to generate significant sales starting from Q2, with land sale profits in Q2?Q3 and sales from the delivery of the second phase, second villa (self-developed project) in Q4, resulting in annual sales of approximately 270 to 280 billion KRW."