[Click eStock] "Daewoo Construction, Lowers This Year's Earnings Estimates... Target Price Down"

Shinhan Investment Corp. on the 31st downgraded the target price for Daewoo Engineering & Construction from 6,100 KRW to 5,900 KRW, citing a revision of earnings estimates. The investment rating was maintained as Buy.

Researcher Kim Sun-mi of Shinhan Investment Corp. stated, "Daewoo Engineering & Construction's consolidated sales for Q4 last year were 2.8 trillion KRW, down 13.4% compared to the same period last year, and operating profit was 77.9 billion KRW, a decrease of 68.4%. Both figures missed market expectations by 8.2% and 59.2%, respectively."

Proactive bad debt write-offs related to unsold housing were reflected, and additional costs incurred at overseas civil engineering sites caused a sharp decline in operating profit. Meanwhile, net profit only fell short of market expectations by 18.1% due to increased foreign exchange valuation gains.

Researcher Kim said, "Although Q4 results last year were disappointing, there was no adjustment to the planned housing cost rate that would affect this year's performance. The planned reduction of unstarted project financing (PF) is viewed positively." She added, "With Financial Supervisory Service Governor Lee Bok-hyun's demand for PF reserve accumulation, restructuring is expected to accelerate. Prompt PF reduction and proactive handling of potential losses will contribute to stabilizing this year's earnings."

She also noted, "This year, the slowdown in external growth is greater than expected. The decline in sales is due to the completion of major domestic civil engineering sites and delays in new housing supply last year. Due to tightened loan regulations, delayed interest rate cuts, and PF restructuring, the housing market is expected to remain sluggish until the first half of the year. Recovery in housing sales will likely be possible only after the second half of next year."

Nonetheless, she pointed out, "However, with increased sales in the overseas division, which shows the highest profitability among all business units, the company's overall operating profit this year is expected to maintain last year's level of 667.2 billion KRW."

Researcher Kim concluded, "Reflecting the downward revision of earnings estimates, the target price has been lowered. The investment points, such as flexible responsiveness to the recovery of regional housing markets and profit growth from expanded overseas sales, remain valid. Investment attractiveness is expected to be highlighted in the second half of the year when the housing market rebounds and overseas division growth accelerates."