[Click eStock] "Samsung E&A Needs Shareholder Returns for Sustained Rise... Target Price Down"

Target Price Revised Downward by 9% Compared to Previous Level

On the 2nd, KB Securities downgraded the target price of Samsung E&A from 39,000 KRW to 35,500 KRW, stating that shareholder returns are necessary for a sustained upward trend in the stock price. The investment rating was maintained as 'Buy.'

Jang Moon-jun, a researcher at KB Securities, explained, "The target price is based on a 12-month forward price-to-book ratio (PBR) of 1.5 times, reflecting a 9% reduction from the previous target due to downward revisions in earnings estimates and a decline in return on equity (ROE). We have lowered the controlling shareholder net profit forecasts for 2025 and 2026 by 5.5% and 5.9%, respectively, resulting in a decrease in ROE from 14.7% to 13.9%."

Due to weak oil prices and uncertainties in the order market, Samsung E&A has recently shown sluggish stock performance. In addition, the absence of shareholder returns continues to act as a persistent burden. Researcher Jang noted, "Considering that the stock prices of engineering, procurement, and construction (EPC) companies tend to have a strong correlation with oil prices and order backlogs, it is somewhat natural that the current oil price trends and the resulting increased uncertainty in future order prospects are negatively affecting Samsung E&A's stock price. However, despite a significant increase in order backlog to 10.9 trillion KRW in the first half, the stock price has not shown a corresponding rise throughout the year, which warrants further reflection. Factors other than oil prices (environment) and order backlog (fundamentals) are holding back the stock, and the lack of shareholder returns is seen as a major cause." He added, "Given the industry's characteristics, which do not require large-scale capital expenditures (CAPEX), the only way to assure investors of the quality of earnings and confirm sustainable management is through shareholder returns."

Samsung E&A's third-quarter performance this year is expected to meet market expectations. Researcher Jang said, "Samsung E&A's third-quarter sales are expected to be 2.38 trillion KRW, a 3.8% decrease compared to the same period last year, and operating profit is expected to increase by 16.7% to 179.1 billion KRW, meeting market expectations. Considering the stronger Korean won in the third quarter and the possibility of reduced one-time settlement gains, profitability is expected to be somewhat weaker than in the first half."