[Click eStock] Low Oil Prices and COVID-19... Samsung Engineering's 1Q Operating Profit Expected to Drop 39%

Overseas Activity Restrictions Due to COVID-19 Expected to Cause Business Difficulties in Second Half
Order Achievement Rate Projected to Reach Only 51%

[Asia Economy Reporter Minwoo Lee] Samsung Engineering's operating profit for the first quarter of this year is expected to decrease by 39% compared to the same period last year. The decline in international oil prices and restrictions on overseas business activities due to the novel coronavirus infection (COVID-19) have been analyzed as negative factors. Accordingly, the order achievement rate for this year is estimated to be only 51%.

On the 14th, NH Investment & Securities forecast that Samsung Engineering will achieve consolidated sales of 1.393 trillion KRW and an operating profit of 73 billion KRW in the first quarter of this year. Sales increased by 3% compared to the first quarter of last year, but operating profit decreased by 38.7%. This level is in line with the market consensus of sales of 1.399 trillion KRW and operating profit of 79 billion KRW. As major overseas sites got on track and progress rates improved, sales in the petrochemical sector were estimated to have increased by 25% year-on-year to 715 billion KRW. However, it was explained that profits decreased due to one-time factors such as settlement profits from sites that ended in the first quarter of last year.

The problem lies in future overseas orders. NH Investment & Securities projected Samsung Engineering's order achievement rate for this year at 51%. The non-petrochemical sector is expected to maintain an annual volume of about 3 trillion KRW at a normal level through affiliate orders, but the petrochemical sector is said to be severely impacted. Due to COVID-19 restrictions on overseas business activities, the order achievement rate is expected to fall short of 50%.

Researcher Minjae Lee of NH Investment & Securities said, "Last month, Samsung Engineering was selected as the preferred negotiator for the Saudi Jafurah gas field project worth 1.5 billion USD (approximately 1.82 trillion KRW), and the announcement of the construction company selection for the Sarawak methanol plant in Malaysia (1 billion USD) is expected by the end of the first half, making it possible to secure orders exceeding 2.5 billion USD in the first half." He added, "However, projects planned within the year such as the North America PTTDLM ECC project (1.1 billion USD) and the Dos Bocas refinery project in Mexico (3.2 billion USD) face delays in order activities due to profitability deterioration caused by the decline in oil prices and overseas entry restrictions due to COVID-19."

For these reasons, NH Investment & Securities maintained a 'HOLD' investment rating on Samsung Engineering. Additionally, considering the possibility of a prolonged sluggish order market due to COVID-19, the target stock price was lowered by 40.5% to 12,500 KRW. The closing price on the previous day was 11,400 KRW.

This content was produced with the assistance of AI translation services.