On December 9, iM Securities analyzed that DL E&C could become a target for activist funds due to the low level of control held by its largest shareholder.
After focusing its analysis on DL E&C's cash equivalents, investment properties, inventories, and equity investments in affiliates, iM Securities estimated that the appropriate share price for DL E&C, based on sum-of-the-parts (SOTP) valuation by business segment, is 129,000 won per share. Even when excluding land for long-term unstarted projects, the value is assessed at 105,000 won per share. As of December 8, DL E&C's closing price was only 41,050 won.
iM Securities stated, "DL E&C has consistently been undervalued compared to its peer group due to its conservative order-taking stance and inefficient capital allocation. However, we believe that it is possible to recognize some value for its highly liquid investment properties and affiliate equity investments with significant upside potential."
As of the third quarter of this year, DL E&C holds net cash of 934 billion won. Its investment properties, based on book value, amount to 549.4 billion won and include highly liquid and high-quality real estate assets such as Glad Yeouido and Songdo Golf Course. The book value of equity investments in affiliates is 600.7 billion won, which includes 356.9 billion won in the Canakkale corporation, which is guaranteed a minimum operating income by the Turkish government, as well as several real estate PFVs.
The land for long-term unstarted projects, such as Osan Sema, is recorded at a book value of 895 billion won. Osan Sema has already reflected accumulated provisions of about 300 billion won. Given the characteristics of the land, iM Securities believes that even under the worst-case scenario, the likelihood of significant amortization compared to the current book value is low, and that this asset could attract attention if the local real estate market turns around in the future.
iM Securities noted that although DL E&C's net asset cash reaches 1 trillion won, the company could become a target for activist funds due to its low market capitalization and the low control held by its largest shareholder.
iM Securities explained, "The largest shareholder of DL E&C is DL and its related parties, currently holding 24.82%. The second-largest shareholder is the National Pension Service, holding 9.12% as of the third quarter. Following that, Kopernik Global holds an 8.46% stake. Excluding DL and its related parties, institutional investors holding more than 5% collectively own as much as 17.58%," the firm added.
They further analyzed, "DL E&C's low level of control by its largest shareholder, its low risk of insolvency combined with very high cash equivalents, its conservative shareholder return policy (from 2024 to 2026, dividends of 10% of net income and 15% share buybacks), and its highly liquid non-core assets (such as Glad Yeouido investment property) are all factors that could sufficiently attract intervention from activist funds."
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