DL E&C, Order Performance Below Expectations but Undervalued Appeal Remains

[Asia Economy Reporter Park Jihwan] Shinhan Financial Investment evaluated DL E&C on the 10th, stating that although the order performance in the first half of the year did not meet expectations, the stock still shows attractive undervaluation. They gave a 'Buy' rating and set a target price of 210,000 KRW.

Kim Hyunwook, a researcher at Shinhan Financial Investment, said, "The expected performance for the upcoming second quarter is sales of 2 trillion KRW, a 2% decrease compared to the previous year, and operating profit of 223.3 billion KRW," adding, "This slightly exceeds market expectations." Although there may be some impact from last year's decrease in pre-sales, considering the stable profitability of housing and civil engineering shown in the first quarter, the operating profit is evaluated as satisfactory.

Pre-sales in the first half are expected to achieve 10,000 units, which is half of the annual target as planned. However, the order intake appears somewhat sluggish. Considering the total order amount of 3.2 trillion KRW in the first half against the annual target of 11.5 trillion KRW, achieving the target for the second half is uncertain.

Researcher Kim Hyunwook explained, "Due to last year's decrease in pre-sale volume, new businesses requiring time, and shareholder return policies, the stock has been undervalued," adding, "Although the recent stock price increase has narrowed the valuation gap compared to other large construction companies, it still appears undervalued." While the 12-month forward price-to-book ratio (PBR) for the industry averages between 0.77 and 0.90, DL E&C's PBR is only 0.66.

Kim said, "Considering the expected revitalization of the maintenance market due to the presidential election in the second half, a re-rating of the construction sector overall is anticipated," and added, "This is a time when undervaluation attractiveness stands out, so we initiate coverage with a target price of 210,000 KRW by applying the 2018 average PBR of 1.0x during the past housing sector performance rebound period."

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