[Click eStock] "Daewoo Construction, 4Q Earnings Expected to Decline... Target Price Lowered"

High Cost Ratio and Weak Overseas Orders
Key to Earnings Improvement Lies in Cost Ratio of Housing Construction Sector
Mid- to Long-Term Recovery in Earnings Expected

On the 14th, KB Securities lowered the target price of Daewoo Engineering & Construction from 4,100 KRW to 3,600 KRW. The investment rating was maintained at 'Hold.' The target price is based on a 12-month forward price-to-book value (PBV) ratio of 0.33, reflecting a downward revision in earnings estimates.

According to KB Securities, Daewoo Engineering & Construction's performance in the fourth quarter of 2024 is expected to be weak. Revenue is projected to decrease by 7.3% year-on-year to 2.57 trillion KRW, and operating profit is expected to fall by 26.6% to 57.2 billion KRW. This is mainly due to a persistently high cost ratio in the housing construction sector, the potential additional recognition of bad debt write-offs related to unsold units, and the disappearance of land sale gains from the Vietnamese THT subsidiary.

Poor overseas orders also negatively impacted the performance. Overseas orders in 2024 are expected to fall short of 500 billion KRW, showing underperformance compared to targets. Large projects such as the Turkmenistan mineral fertilizer plant (approximately 1 trillion KRW) and the Iraqi naval base (1.8 trillion KRW) have been postponed, remaining in the order pipeline for next year. However, total orders are estimated to be around 9.5 trillion KRW, and achieving the housing supply target of 19,000 units is viewed positively.

For 2025, Daewoo Engineering & Construction’s consolidated revenue is expected to decline by 5.3% year-on-year to 9.9 trillion KRW, while operating profit is forecast to increase by 16.6% to 395.6 billion KRW. Although top-line growth is expected to slow, improvements in the cost ratio of the housing construction sector and reductions in bad debt write-offs related to unsold units will be key variables for earnings improvement.

Jang Moon-jun and Kang Min-chang, researchers at KB Securities, stated, "Compared to other construction companies in the industry, the profit improvement is relatively limited, which restricts investment attractiveness. Considering Daewoo Engineering & Construction’s 2024 performance and market conditions, the short-term potential for stock price increase is not significant. However, if large overseas projects are secured and cost efficiencies are realized after 2025, there is potential for mid- to long-term earnings recovery and stock price rebound."