Samsung Securities said on the 19th that while LIG Nex1's order backlog rose sharply from a year earlier, profit growth is slower than expected. It lowered its target price to 540,000 won from 595,000 won and maintained a "buy" rating. LIG Nex1's closing price in the previous session was 460,000 won.
LIG Nex1's operating profit in the fourth quarter last year fell 40% short of market expectations. Han Young-soo, Head of Team at Samsung Securities, said, "Paradoxically, the core reason for the weak results is the large-scale orders," and noted, "New orders in the fourth quarter last year were 4.2 trillion won, a scale similar to annual revenue." More than half of the orders are domestic research and development projects, and the impact is large from recognizing about 50 billion won in loss provisions for those projects.
Export revenue also did little to help results, with 28% coming from a low-margin Indonesia project and loss-making Ghost Robotics. Pre-tax profit also reflected 140 billion won in impairment of intangible assets and goodwill related to Ghost Robotics.
At the end of last year, LIG Nex1's order backlog was 26.2 trillion won, up 31% from a year earlier. The backlog has been increasing for eight straight years and has grown a whopping 3.2 times compared with five years ago.
Han, Head of Team, explained, "The primary background of the surge in the order backlog is, of course, the expansion of new orders, but it can also be interpreted that the speed at which the accumulating backlog is converted into revenue is slower than thought." Samsung Securities said delivery schedules for the large projects the company has won have grown longer than expected and lowered this year's short-term profit estimate for LIG Nex1 by 20%.
Han, Head of Team, said, "The current large backlog will eventually be converted into revenue, and the company's facility expansion to handle this is continuing," and added, "Projects with excellent profitability account for 55% of the total backlog, so over the long term profitability improvement is possible amid top-line growth."