On the 29th, Hana Securities said Daewoo Engineering & Construction's construction and dwellings results for the first quarter of this year beat expectations (consensus) and that a contract to win a nuclear power plant order in the Czech Republic is expected in the second quarter. It maintained its investment opinion at "Buy" and raised the target price 512.5% from 8,000 won to 49,000 won. Daewoo Engineering & Construction's closing price the previous day was 37,150 won.
Daewoo Engineering & Construction's first-quarter revenue this year was 2 trillion won, and operating profit was 255.6 billion won. Compared with the first quarter of last year, revenue fell 6%, while operating profit rose 68.9%.
Hana Securities cited a margin surprise in construction and dwellings as the reason Daewoo Engineering & Construction's first-quarter operating profit beat the consensus (121.3 billion won) and the estimate (143.5 billion won).
Kim Seung-jun, an analyst at Hana Securities, said, "Daewoo Engineering & Construction said at last year's fourth-quarter earnings release that it expected a dwellings construction margin of more than 13%, and the gross profit margin (GPM) for construction and dwellings in the first quarter of this year was 20.8%," adding, "A downward adjustment to the planned cost ratio (58 billion won) and the effects of settlement gains and contract price increases (43 billion won) had an impact."
Hana Securities estimated that Daewoo Engineering & Construction's annual revenue this year will be 2 trillion won, with operating profit of 143.5 billion won. For the GPM estimates, it projected 7% for civil engineering, 13.5% for dwellings construction, 15% for plant, and 25% for consolidation subsidiaries. It expected Daewoo Engineering & Construction's margins to improve from last year.
Kim said, "All sites that started in 2021, when margins were low, have been completed, and only 7%–8% of the 2022 starts remain, so margins will be better this year than last year," adding, "The sales share from self-developed project sites that started last year will also expand from 7% to 14%."
Hana Securities said Daewoo Engineering & Construction's share price surged on expectations of an earnings turnaround and nuclear power plant orders after recognizing large losses (big bath) in the fourth quarter of last year.
Kim explained that a valuation premium was applied given that the company is pursuing overseas nuclear power plant orders not only in the Czech Republic but also in Vietnam and the United States.
Kim said, "A contract to win a nuclear power plant order in the Czech Republic is expected in the second quarter of this year, and the company is also pursuing nuclear power plant orders in Vietnam, the Czech Republic, and the United States next year and the year after," adding, "There is also a possibility of inclusion in the MSCI Korea index."