[Click eStock] Samsung C&T, Clear Structural Profit Improvement in Trading and Fashion Sectors

[Asia Economy Reporter Lee Seon-ae] Eugene Investment & Securities stated on the 28th that although Samsung C&T recorded an earnings shock in the third quarter due to one-time losses, it maintains a buy rating and a target price of 190,000 KRW. This is because the focus is on structural profit improvement rather than one-time losses.

Samsung C&T's third-quarter revenue and operating profit were 8.3 trillion KRW and 141 billion KRW, respectively, significantly below consensus estimates (revenue 8 trillion KRW, operating profit 317.5 billion KRW). The cause of the shock was the preemptive recognition of approximately 200 billion KRW in losses related to the Gangneung Anin coal power plant. As this is the last coal-fired power plant construction in Korea, cost-sharing discussions with subcontractors have been difficult, and various additional costs such as complaints have occurred. Currently, the progress rate is over 80%, and since foreseeable additional costs have been proactively accounted for, the possibility of further large-scale related losses is low.

The fundamentals of Samsung C&T's bio, trading, fashion, and leisure divisions show clear improvement. The bio division's contribution to operating profit increased from 29% last year to 41% this year as the global CMO market growth accelerated. The trading division's operating profit margin improved due to rising global commodity prices. Since carbon emission reduction policies are making overproduction difficult, the upward trend in global commodity prices is expected to continue.

The fashion division is even more impressive. It is expected to record an operating profit margin of 6% this year, compared to an operating loss last year. The effect of business rationalization, along with increased luxury consumption by the MZ generation, aligns well with the company's product portfolio. The leisure division has not yet recovered from the pandemic but achieved breakeven in the third quarter through cost rationalization. Full normalization is expected next year with the With-Corona policy.

From the fourth quarter of this year, operating profit is expected to normalize, increasing by 37% to 1.6 trillion KRW in 2022 compared to this year. Profit growth is anticipated in the bio division as well as construction, trading, fashion, and leisure sectors.

Researcher Han Byung-hwa of Eugene Investment & Securities emphasized, "Considering the improvement in fundamentals across all divisions next year, the recent stock price decline is seen as a good buying opportunity," adding, "The company's price-to-book ratio (PBR) based on 2022 earnings is 0.7 times, which is at the lower end of the band."

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