iM Securities said on the 9th that DL E&C needs to be revalued for investment real estate with high liquidity and investment stocks with significant upside potential. It maintained a "Buy" investment opinion and a target price of 52,000 won. DL E&C's previous day's closing price was 41,050 won.
iM Securities said DL E&C has been consistently undervalued compared with rivals due to a previously conservative Korea Technology Finance Corporation (KOTEC) order record and inefficient capital allocation, but it is time to revalue its real estate holdings and equity stakes in related corporations.
As of the end of the third quarter this year, DL E&C holds net cash of 934 billion won. It holds investment real estate with a book value of 549.4 billion won, including high-liquidity prime properties such as Glad Yeouido and the Songdo golf course.
The book value of investment stocks is 600.7 billion won, including 356.9 billion won in equity of the Canakkale entity, for which the Turkish government guarantees minimum operating revenue, as well as stakes in multiple real estate project finance vehicles (PFVs).
Bae Se-ho, an analyst at iM Securities, said, "As of the end of last month, the ratio of guarantees on not-yet-started project financing (PF) to equity was 11.1%, the lowest among peer builders," and added, "Under a conservative management stance, the risk from PF contingent liabilities is not significant."
DL E&C holds 895 billion won worth of undeveloped land, including Osan Sema, where development has not yet begun, and the equity value of X-Energy, in which it invested about 29 billion won last year. For the Osan Sema undeveloped land, it has already reflected a provision for a loss of about 300 billion won.
Currently, the largest shareholder of DL E&C is DL and its related parties, with 24.82% equity. The National Pension Service is the second-largest shareholder, holding 9.12% as of the end of the third quarter this year. Next is U.S. investment advisory firm Kopernik Global, with 8.46% equity.
Bae said, "The largest shareholder's limited control and low default risk, in contrast with very large cash-like asset holdings, a conservative shareholder-return policy, and ownership of noncore assets with high liquidity such as Glad Yeouido are factors that could readily invite activist fund intervention."
DL E&C's standalone entity and overseas subsidiaries are expected in 2026 to post revenue of 5.5 trillion won, down 7.4% from a year earlier, and operating profit of 416 billion won, up 21.9%.
Bae said, "The swing factor for DL E&C's performance after next year is plant orders. Due to a conservative stance on plant orders, this year's order intake was very weak, and without meaningful orders, plant revenue is expected to continue declining after 2026."
He added, "The company is pursuing plant orders worth trillions of won in the Middle East and Europe, respectively, and if achieved, it can resume a revenue growth trajectory in 2027," and said, "Additionally, if the Russia-Ukraine war ends, the plant business is expected to benefit."