SK Securities cut Samsung C&T(028260)'s target price to 450,000 won from 590,000 won to reflect the drop in net asset value (NAV) caused by the decline in Samsung Electronics' share price. However, it kept its "buy (BUY)" rating, saying the current share price is excessively discounted versus NAV, making the valuation more attractive.
On the 30th, Choi Gwansoon, an SK Securities researcher, said in a report, "As Samsung Electronics' share price fell 42.5% from this year's peak, Samsung C&T's NAV also decreased 30.8% from its peak," adding, "We lowered the target price to reflect this."
However, it noted that the current share-price drop is larger than the NAV decline, highlighting undervaluation. Choi analyzed, "Samsung C&T's share price fell 46.6% from its peak, outpacing the drop in NAV, and the current discount to NAV is 61.7%, the highest level in the past year," adding, "Valuation attractiveness has instead increased."
Second-quarter results beat market expectations. Samsung C&T posted 12 trillion won in revenue and 1.0317 trillion won in operating profit in the second quarter. Operating profit rose 37.1% from a year earlier, about 19% above the market consensus.
In construction, operating profit jumped 71.2% from a year earlier on the back of higher revenue from high-tech projects, while in trading, operating profit rose 77.5% on increased trading revenue, driving overall improvement.
In particular, the high-tech division alone secured 6.4 trillion won in orders in the first half, making it likely to achieve its annual order guidance (6.8 trillion won) early. SK Securities projected that high-tech–led earnings improvement will continue in the second half.
SK Securities forecast Samsung C&T's full-year results at 45.7 trillion won in revenue and 3.8141 trillion won in operating profit. That would be increases of 12.1% and 15.8%, respectively, from a year earlier.
Choi said, "Benefits are expected from the expansion of Samsung Electronics' capital expenditures (CapEx), and the possibility of increased dividends on the back of Samsung Electronics' earnings improvement is also high," adding, "This could translate into greater shareholder returns at Samsung C&T."
Choi added, "The current share price of Samsung C&T excessively reflects only the decline in Samsung Electronics' share price," and projected, "Gradual share-price gains are possible as second-half earnings improve and shareholder returns become more visible."