[Click eStock] "DL E&C Housing Sales Decline, Plant Growth Expected"

Meritz Securities Report

[Asia Economy Reporter Kwangho Lee] Meritz Securities maintained a buy rating and a target price of 47,000 KRW for DL E&C on the 6th. Although the operating profit forecast for this year was lowered by 12%, recent interest rate stabilization was reflected in the valuation.

Moon Kyungwon, a researcher at Meritz Securities, said, "DL E&C's consolidated operating profit for Q4 2022 recorded 119.6 billion KRW, down 55.6% year-on-year, falling short of the consensus (average securities firm forecast of 138 billion KRW)."

Researcher Moon explained, "Despite improvements in GPM (gross profit margin) in the civil engineering and plant sectors based on increased contract amounts and settlement profits from overseas projects in the completion stage, the overall company profit fell short of expectations due to a significant deterioration in the housing sector's cost ratio (down 6.2 percentage points compared to the previous quarter)."

He added, "The deterioration in the housing cost ratio is presumed to be due to the reflection of overall raw material price increases and some one-time factors," and said, "Despite the company's profitability-focused order strategy, the observed worsening of the housing cost ratio has lowered expectations for improvement in the housing cost ratio this year."

He further analyzed, "This year's guidance presented orders of 14.4 trillion KRW (up 12.1% year-on-year), sales of 8.2 trillion KRW (up 10.9% year-on-year), and groundbreaking of 9,080 units (down 6.3% year-on-year). Among these, the plant sector targets (orders of 3.6 trillion KRW, sales of 1.4 trillion KRW) stand out."

He continued, "If achieved, the decline in sales and profitability in the housing sector can be sufficiently offset by growth in the plant sector," but noted, "Since the plant sector's order growth has not been clear so far and specific details of the pipeline have not been disclosed, there is uncertainty regarding the achievement of the guidance."

He also added, "Since a significant portion of the targeted plant orders is expected to materialize in the first half of the year, the point at which uncertainty will be resolved does not seem far off."