[Click eStock] Samsung Engineering, Bright Orders "Target Price Raised by 10%"

[Asia Economy Reporter Lee Seon-ae] Korea Investment & Securities announced on the 19th that it maintains a buy rating on Samsung Engineering and raises the target price from 30,000 KRW to 33,000 KRW. The outlook for orders next year is bright, and the company is generating an overwhelming return on equity (ROE) compared to competing EPC companies, making the expansion of the company's valuation multiple (enterprise value relative to profitability) justified. The target price was calculated by applying a 12-month forward book value per share (BPS) of 15,429 KRW and a price-to-book ratio (PBR) of 2.1x (ROE 15.8%, COE 9.2%).

Samsung Engineering is estimated to record sales of 2.6748 trillion KRW and operating profit of 144.6 billion KRW in the fourth quarter. Compared to the same period last year, sales are expected to increase by 6.4% and operating profit by 33.5%, both in line with consensus (market estimates).

Researcher Kang Kyung-tae of Korea Investment & Securities explained, "The reason operating profit increases significantly compared to sales is due to the base effect of the gross profit margin (GPM) created last year in the non-chemical division."

Annual sales for next year are expected to increase by 4% compared to the same period last year to 10.1835 trillion KRW. Operating profit is estimated to decrease by 2% to 620 billion KRW during the same period.

Researcher Kang said, "The 'DBNR' site in Mexico, where the cumulative progress rate has exceeded 50%, will generate sales exceeding 1.6 trillion KRW next year alone, leading the performance of the chemical division," adding, "Considering the rapidly monetized orders from affiliates, achieving the annual sales estimate seems feasible." He continued, "As a pure EPC (engineering, procurement, and construction) company free from housing sales market fluctuations, the biggest challenge is whether the good construction margins currently being generated can be sustained. The company has steadily increased productivity per person through process execution innovation, sufficiently secured LCC design personnel and local vendors, and continuously reduced fixed costs. The broad bidding pool also makes the order outlook for next year brighter than ever."