The author is an analyst of NH Expenditure & Securities. He can be achieved at [email protected] — Ed.
Even though a increase in COGS-to-sales ratio looks inescapable in 2H22 at Daewoo E&C’s housing division, a reversal of reduction provisioning is envisioned from some abroad assignments. Domestic/abroad get expansion is optimistic for the firm’s valuations. Trading at a 2022E P/E of 5x, the shares boast valuation benefit.
Positives abound for abroad tasks
Adhering to a Purchase ranking, we raise our TP on Daewoo E&C from W8,000 to W8,600 to mirror upward adjustment to our EV/EBITDA many for the firm’s running division from 3.5x to 4.0x in line with a possible enlargement in overseas orders and income, even with a most likely reduction in earnings at the domestic housing division due to COGS-to-revenue ratio raise. We adhere to a Purchase ranking, noting that: 1) product sales growth at the domestic housing division should offset any increase in COGS-to-sales ratio and 2) Daewoo E&C is able of winning abroad orders (eg, nuclear electrical power plant (NPP) tasks in Japanese Europe and LNG initiatives in the Middle East). We draw focus to the company’s solid keep track of record for LNG and NPP assignments, together with Nigeria LNG Prepare 7and the Hanbit and Hanul OPR1000 NPPs.
In 2H22, Daewoo E&C is also predicted to get civil engineering and plant design orders from countries such as Nigeria, Iraq, and Libya. In its 1Q22 earnings connect with, the firm reported that a reversal of loss provisioning is predicted from some projects many thanks to conservative price tag-to-income calculation—a progress that could offset any negatives stemming from climbing raw product selling prices. In 1Q22, the reversal of decline provisioning amounted to W32bn.
Expense boost pitfalls to relieve in direction of 2H22
In their current convention phone calls, the bulk of design corporations indicated that they are at this time faced with challenges involved with growing price tag-to-profits ratios owing to soaring uncooked product price ranges. But, relations with challenge owners (including associations) and source-desire ailments for raw materials (eg, cement and metal) differ by firm. Backed by its solid condominium brand electricity, Daewoo E&C is envisioned to keep on being mainly unaffected. That claimed, at the domestic housing division, COGS-to-gross sales ratio is to inevitably climb by 2~3%p compared to the earlier 5-yr regular. In line, we revise down our 2022 OP estimate by 2% from the Apr 5 determine.