[Click eStock] "DL E&C, Focus on 4Q Plant Orders... Investment Rating Neutral→Buy"

Increase in Plant Orders and Construction Cost Hike Effects Noted
Next Year's Sales Outlook and Guidance, Target Price Likely to Influence
Possibility of 4Q Earnings Downgrade if Construction Cost Hike Effects Are Insufficient

Hana Securities on the 30th upgraded its investment opinion on DL E&C from 'Neutral' to 'Buy' while maintaining the target price at 35,000 KRW. This is based on applying a target price-to-earnings ratio (Target P/E) of 7.5 times to the expected earnings per share (EPS) for 2024. Additionally, it analyzed that there will be fluctuations in the stock price due to various factors starting from the fourth quarter.

Seungjun Kim and Minho Ha, researchers at Hana Securities, stated, "We adjusted the investment opinion reflecting the stock price decline, and we expect no significant changes until the third quarter. However, we plan to further review the possibility of plant orders in the fourth quarter, the effect of increased housing construction costs, and whether the target for housing starts is achieved." They added, "We also plan to decide on any changes to the target price after confirming next year's sales outlook and guidance."

DL E&C's third-quarter sales are expected to reach 2.1 trillion KRW, representing a 10.3% increase compared to the same period last year. On the other hand, operating profit is projected to decrease by 9.2% year-on-year to 73 billion KRW. Despite weakness in the housing sector, sales growth in the plant sector is expected to drive overall revenue. The gross profit margins (GPM) by sector are anticipated to be 8% for housing, 10% for civil engineering, and 15% for plants, while the GPM for the subsidiary DL Construction is forecasted at 6.2%. DL Construction is expected to recover to a margin in the 6% range after reflecting additional costs in the second quarter.

In terms of orders, DL E&C is expected to secure 3.3 trillion KRW in the third quarter, with the order backlog projected to reach 31.4 trillion KRW. Housing starts are estimated at 1,471 units for DL E&C and zero units for DL Construction. The cumulative housing starts amount to 6,000 units and 3,200 units, respectively. For the fourth quarter, DL E&C plans to start construction on 4,500 units, while DL Construction plans 2,700 units.

Researchers Seungjun Kim and Minho Ha noted, "Operating profit for the fourth quarter is expected to be 121.9 billion KRW, but there is a possibility of downward revision if the effect of increased construction costs falls short of expectations." They added, "We expect the housing GPM in the fourth quarter to be 14%, reflecting anticipated performance improvements due to the effect of increased construction costs."