Sangsangin Investment & Securities said Samsung E&A(028050) is set to see full-fledged growth in new businesses such as advanced materials and new energy, and that orders are likely to keep rising on the back of increased investment by group affiliates. It kept its "buy (BUY)" rating and raised the target price to 61,000 won from 35,000 won.
On the 27th, researcher Kim Jin-beom at Sangsangin Investment & Securities said in a report that "as the share of high-margin businesses expands with new energy centered on LNG and water treatment and with increased semiconductor investment, scale and profitability will continue to improve."
Samsung E&A's second-quarter results beat market expectations. Samsung E&A posted second-quarter revenue of 2.6 trillion won and operating profit of 273.1 billion won. Those figures rose 19.8% and 51%, respectively, from a year earlier.
Advanced materials and new energy led the earnings improvement. The advanced materials institutional sector recorded revenue of 838 billion won, up 45.9% from the previous quarter, and the gross profit margin (GPM) climbed to 17.5% as one-off gains and foreign exchange effects were reflected. The new energy institutional sector also delivered strong results, with revenue of 698.1 billion won, up 146.3% from a year earlier, and a gross profit margin of 15.5%.
By contrast, the chemical institutional sector saw revenue decline as parts of the Saudi Fadhili project were delayed due to Middle East geopolitical risks. However, researcher Kim noted that "the delayed portions of the project are at a level that can be recognized as revenue in the second half," adding that "scale will improve from the second quarter."
In particular, the expansion of investment by group affiliates was assessed as a mid- to long-term growth driver. Samsung Group's order guidance for this year was raised to 7 trillion won from 3 trillion won. Researcher Kim said, "Although specific order sizes by affiliate have not been disclosed, the groupwide expansion of investment suggests the potential for this to continue for the next two to three years," adding, "Revenue recognition for advanced industry orders will also likely accelerate."
Accordingly, Sangsangin Investment & Securities revised up its outlook for Samsung E&A's advanced industry revenue in the second half of this year to 2.2 trillion won from its previous estimate. That is up 91.6% from the same period last year.
Researcher Kim said, "Starting with the P5 project, we plan to directly carry out EPC (engineering, procurement and construction) for ultrapure water projects and, based on the related technology, target the global water treatment market," adding, "The expansion of high-margin businesses centered on semiconductors and new energy will translate into higher corporate value."