[Click eStock] Daewoo E&C, Korea's Only LNG Plant EPC "Top Pick, Time to Buy"

[Asia Economy Reporter Lee Seon-ae] Korea Investment & Securities announced on the 8th that it maintains a buy rating and a target price of 7,700 KRW for Daewoo E&C. In particular, it maintained Daewoo E&C as the top pick among covered construction companies. As of Q2 2022, the company holds 2.3 trillion KRW in cash equivalents, which exceeds its total interest-bearing debt by 316 billion KRW. Concerns raised by some regarding liquidity related to bonds issued proactively under favorable conditions are deemed unfounded, and Daewoo E&C’s cash-generating ability is expected to improve due to its highly profitable overseas projects.

Researcher Kang Kyung-tae of Korea Investment & Securities emphasized, "Currently, the market’s attention on construction companies is focused on overseas contract wins, and Daewoo E&C, which has built a strong reference base in this area, has no reason to be sidelined," adding, "Now is the time to actively buy Daewoo E&C."

There are two key points. First, it is the only domestic LNG plant EPC contractor. The LNG plant EPC market has high entry barriers centered around license holders of key equipment such as heat exchangers. In this oligopolistic market, Daewoo E&C is the only domestic construction company that can secure contracts as the primary contractor rather than as a partner. The Nigeria LNG Train 7 project, which began construction in Q4 last year with a fixed estimated cost, is progressing smoothly, recording a stable cost ratio in the high 80% range through the first half of this year, helping to partially offset quarterly operating profit damage caused by housing. Daewoo E&C is also performing the basic design of the central processing facility (CPF) for two LNG projects underway in Southeast Asian gas-producing countries, increasing the likelihood of new LNG contract wins within 2024.

Next, there are many overseas project pipelines either preparing bids or awaiting bid results. Contracts worth over 7.2 trillion KRW are expected to be finalized by 2024. Notably, high-profit base country projects such as those in Nigeria and Iraq amount to 1.4 trillion KRW, and nuclear power plant projects exceed 3.5 trillion KRW. Daewoo E&C holds the construction position in Team Korea, formed for the bid on the Czech Dukovany Nuclear Power Plant Unit 5, and is also participating in the Polish nuclear power plant bid. As of Q2 2022, the backlog of overseas construction orders reached 8.5 trillion KRW. Researcher Kang predicted, "As profitable projects are sequentially secured, overseas sales will increase year by year," and "the overall company margin will also improve accordingly."