[Click eStock] "Daewoo Construction, Slow Market Recovery... Investment Rating and Target Price Down"

Target Price Lowered from 4,100 KRW to 3,500 KRW
Investment Rating Downgraded from 'Buy' to 'Short-term Buy'

Shinhan Investment Corp. on the 13th downgraded its investment opinion on Daewoo E&C from 'Buy' to 'Short-term Buy (Trading Buy)' and lowered the target price from 4,100 KRW to 3,500 KRW, citing a slow recovery in the industry.

Researcher Kim Sun-mi of Shinhan Investment Corp. explained, "As a leading housing company, we reflected the slower-than-expected industry recovery and the resulting downward revisions in earnings and cash flow estimates," adding, "For the overseas segment to boost Daewoo E&C's stock price and multiples, volatility at the time of order acquisition and construction commencement needs to decrease."

Daewoo E&C's fourth-quarter results last year are expected to fall short of market expectations. Researcher Kim said, "Daewoo E&C's fourth-quarter sales and operating profit are expected to be 2.6 trillion KRW and 68.1 billion KRW, respectively, falling short of the consensus (average securities firms' forecasts) on operating profit," analyzing that "this is due to limited effects of mix changes by housing sites, conservative cost recognition by segment typical of the fourth quarter, and reduced profits from the high-margin Vietnam development project."

There is also a forecast that this year's earnings recovery will be limited. Researcher Kim predicted, "Despite positive factors such as low contingent liabilities, preemptive recognition of potential losses from unsold units, and high profitability of overseas construction projects with a gross profit margin around 15%, the relatively low profitability of housing and delays in order acquisition and construction commencement of major overseas projects suggest that the strength of this year's earnings recovery will also be limited."

Projects in Iraq, Libya, and Turkmenistan, which were expected to be ordered in the fourth quarter last year, have been postponed to January this year. Researcher Kim noted, "These projects have been negotiated as long-term private contracts, and while construction is expected to proceed quickly once orders are secured, a conservative approach is necessary given the increased volatility in oil prices and exchange rates."

If the housing market downturn continues, stock price recovery is expected to be difficult. Researcher Kim stated, "The stock price has been weak since the third quarter of last year, mainly because Daewoo E&C still has a strong presence as a housing company rather than overseas," adding, "Although the forward price-to-earnings ratio (PER) for 2025 is low at 4.6 times, as long as the housing market downturn continues due to the impeachment political situation, high interest rates, and loan regulations, it will be difficult for Daewoo E&C's stock price and valuation to recover."