DL E&C improved profitability in the first half of this year, led by its dwellings business. While the civil engineering and plant institutional sectors are also strengthening, the financial structure remains stable. The securities industry is watching whether profitability will continue in the second half, along with new orders in plants and data centers and the progress of the Small Modular Reactor (SMR) business.
According to DL E&C on the 28th, the company posted consolidated sales of 3.5281 trillion won and operating profit of 316.8 billion won in the first half. Operating profit rose 53% from a year earlier. After operating profit in the first quarter increased 94.3% from a year earlier, the second quarter also rose 26.3% to 159.4 billion won.
Securities firms cited improved profitability in the dwellings institutional sector as the driver of the latest results. In particular, they noted that in the dwellings business, the sales share of low-profit business sites that broke ground in the past is decreasing, while the share of relatively more profitable sites is rising. Some analysis says that if this shift in establishment mix continues, profitability in the dwellings institutional sector could remain at a certain level in the second half.
LS Securities evaluated the continuation of profitability exceeding 20% in the dwellings institutional sector in the second quarter, following the previous quarter, as a factor in the improved results. It also viewed profitability in the plant institutional sector as remaining stable if one-off factors are excluded. Hyundai Motor Securities analyzed that along with the rise in profitability in the dwellings business, profitability in civil engineering and the plant institutional sector is normalizing.
DL E&C also appears to be maintaining a stable financial structure. As of the end of the second quarter this year, DL E&C held about 1.2 trillion won in net cash, and its liability ratio was 86.4%. Since the partitioning in 2021, it has posted positive operating cash flow every year.
Shinhan Investment Securities cited net cash of more than 1 trillion won and capacity for shareholder returns as financial characteristics of DL E&C. It said that amid ongoing uncertainty in the construction industry, such as a slump in the real estate market and rising construction costs, the size of cash holdings and the level of liabilities could affect business operations.
DL E&C's stable cash generation is translating into shareholder returns. In July, DL E&C signed a trust contract to purchase treasury shares worth 55.5 billion won. As part of its three-year shareholder return policy for 2024–2026, DL E&C is executing a policy of cash dividends amounting to 10% of consolidated net income and treasury share purchases amounting to 15%.
In the second half, whether profitability in the dwellings institutional sector holds and plant and data center order wins will likely be key indicators for the earnings trajectory. In the first half, DL E&C's consolidated new orders were 5.2446 trillion won, up 110.7% from a year earlier. The order backlog is 28.9 trillion won. IBK Securities analyzed that domestic and overseas plant projects of about 2.5 trillion won and data center projects of about 2 trillion won are major order candidates in the second half. It also estimated the preliminary order pipeline in the plant institutional sector at about 10 trillion won.
SMRs are also an area where DL E&C is expanding its business. The company signed a contract with global SMR developer X-energy for "SMR standardization design" and is carrying out design work related to fourth-generation SMRs. Hyundai Motor Securities pointed to the progress of the standard design underway with X-energy and the possibility of expanding participation into other SMR projects as points to watch.
In the data center institutional sector, subsidiary DL Construction won an order in the first half for the Bucheon artificial intelligence (AI) data center worth 126.8 billion won. DL E&C is also reviewing bids for data center projects being pursued in the greater Seoul area and the Chungcheong region.
A DL E&C official said, "DL E&C is proving differentiated competitiveness based on industry-leading profitability and financial stability," adding, "We will further enhance profitability by selecting quality projects based on solid financial strength, while accelerating results in future growth businesses such as plants, SMRs, and data centers to cement a foundation for sustainable growth."