Daishin Securities on the 5th lowered its target price for Daewoo Engineering & Construction(047040) to 22,000 won from 28,000 won to reflect overseas plant industry conditions. However, it kept its "buy (BUY)" rating, saying it expects orders for large projects to kick into gear in the second half.
Lee Hae-jin, an analyst at Daishin Securities, said, "We lowered the target price by applying the cycle-average price-to-book ratio (PBR) instead of the peak average PBR during the overseas plant cycle," but noted, "If orders for large projects become visible, the potential for a multiple rerating remains valid."
Daewoo Engineering & Construction's second-quarter revenue this year was 2.0435 trillion won, down 10.1% from a year earlier, but operating profit rose 182.6% to 232.3 billion won. That beat both Daishin Securities' estimate (120.9 billion won) and the market consensus (160 billion won).
Strong results were driven by improved profitability in the housing and building division. As the revenue share of the housing and building division expanded and one-off gains such as contract price increases and completion-settlement gains were reflected, the gross profit margin (GPM) improved significantly.
However, Daishin Securities projected that even excluding one-off factors, the housing and building division's GPM would remain in the mid-15% range with solid profitability. Profitability in the plant division temporarily slowed due to negotiations to extend the schedule following rework on Nigeria's "Train 7" project, but it is expected to normalize from the third quarter.
New orders in the first half reached 7.1 trillion won, up 22.4% from the same period last year, and the order backlog stood at 53.4 trillion won. Unsold housing inventory also steadily declined from 6,749 units at the end of last year to 3,989 units at the end of July.
Daishin Securities particularly noted that the company raised its full-year order guidance by 9 trillion won to 27 trillion won from 18 trillion won. The analyst said, "As the likelihood of signing large projects within the year in the second half has increased, we reflected some of them in the new guidance," adding, "It reflects the company's confidence in orders."
Key order candidates for the second half include the Dukovany nuclear power plant in the Czech Republic, the Papua New Guinea LNG CPF project, the Indorama fertilizer plant in Nigeria, Mozambique's Rovuma LNG Area 4, and the new airport on Gadeokdo. The total size of these projects is estimated at about 18 trillion won.
The analyst said, "In addition to the Temelín nuclear power plant in the Czech Republic, nuclear power projects in Vietnam and the United States will serve as additional order momentum after 2027–2028," adding, "Beyond short-term earnings improvement, we also expect increased orders for overseas plants in the mid to long term."