This Stock Soared 521.7% This Year... What It Needs to Justify the Surge [This Week's Focus Stock]

Daewoo Engineering & Construction Surges Over 500% This Year
Investor Focus Driven by Return to Profit and Overseas Nuclear Momentum
Concerns of Premature Pricing... "Additional Contracts Needed to Prove Performance"

Editor's Note
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The market’s perspective on Daewoo Engineering & Construction has shifted dramatically in recent months. Formerly classified as a traditional construction stock, Daewoo Engineering & Construction is now more frequently discussed as a “beneficiary of the nuclear power momentum.” Riding this trend, the stock price, which had been stagnant for several years, has surged by 500% since the beginning of this year. As the rally has been so pronounced, some are pointing out that strong order performance needs to follow to support these gains.

Euljiro Daewoo E&C Headquarters. Daewoo Engineering & Construction.

According to the Korea Exchange on April 15, Daewoo Engineering & Construction’s share price soared by 521.7% so far this year, based on the closing price on April 13. Unlike previous years, when it hovered around 4,000 won and remained flat, the stock has experienced explosive growth. The intra-day high of 26,100 won on April 10 was the highest price seen in 18 years, since January 2008. Compared to the intra-day low of 2,940 won on April 9 last year, the stock has climbed ninefold in about one year.

The sharp rise in the stock price is driven by expectations that the company will transition from a construction stock to a nuclear power stock. Securities firms’ reports are generally optimistic as well. They highly rate Daewoo Engineering & Construction’s nuclear power capabilities and growth potential, citing the Czech Dukovany nuclear power project, the Ninh Thuan project in Vietnam, and expectations of additional overseas pipelines. KB Securities described the company as having “fully positioned itself as a nuclear power stock,” while LS Securities diagnosed it as “solidifying its performance with added momentum.” BNK Investment & Securities also emphasized the company’s “stronger-than-expected nuclear power project experience and capabilities,” based on its domestic and overseas nuclear project track record.

Expectations for a recovery in performance have also helped boost the stock price. Daewoo Engineering & Construction posted sales of 11.6478 trillion won and operating profit of 662.5 billion won in 2023, but subsequently entered a downward trend. Last year, sales fell sharply to the 8 trillion won range, and the company posted an 815.4 billion won loss due to large-scale cost write-offs. However, this year is being viewed as a “turnaround year.” According to consensus forecasts from the securities industry, the company is expected to achieve sales of 8.1314 trillion won and operating profit of 514.3 billion won. After having cleared much of the potential losses related to overseas civil engineering and unsold domestic housing last year, the company is on track to normalize profitability starting this year. In addition, with the Czech Dukovany nuclear power plant contract on the horizon, expectations for expanding performance as a nuclear power stock are building.

Expectations Are Clear, but Speed Is Key

However, different questions must be asked when making investment decisions. The fact that there are clear drivers for the company and that the current share price is at a comfortable level are two separate issues. While the rosy outlook for Daewoo Engineering & Construction is well-founded, there is still a possibility that the current share price may have already factored in the favorable scenarios.

The first issue is the speed at which nuclear power expectations translate into actual results. The nuclear power business has undoubtedly been the main driver of this year’s stock rally. KB Securities analyst Jang Moonjun noted, “From now on, it is necessary to realistically consider how quickly and how many additional business opportunities can be secured.” The analysis is that, aside from the Czech Dukovany project, the existence of tangible additional pipelines will determine the future direction of the stock price. So far, the stock has risen on expectations as a “nuclear power-related stock,” but ultimately, actual order volume and schedules must be confirmed to justify the current price. The longer the stock relies solely on expectations, the greater the potential volatility.

Risks remain in the company’s core construction business as well. In the fourth quarter of last year alone, Daewoo Engineering & Construction recognized losses exceeding 1 trillion won. SG&A expenses reflecting unsold inventory losses are projected to jump from 524.4 billion won in 2024 to 1.0538 trillion won in 2025. Domestic unsold projects also contributed to last year’s losses. Due to a sluggish presale market, it has become difficult to recover construction costs at non-residential or non-capital area sites. This is why the company, which has a high proportion of regional housing projects, faced particularly high earnings uncertainty.

It is also necessary to take a sober view of the speed of the performance rebound. LS Securities forecasts that Daewoo Engineering & Construction’s first-quarter sales this year will be 1.9401 trillion won, down 6.6% year-on-year, and operating profit will be 115.1 billion won, a 24.0% decrease. While this could be interpreted as a normalization phase following large-scale cost write-offs in the fourth quarter last year, it also means that it is still too soon to conclude the company is entering a phase of rapid growth.

To Meet Expectations, Additional Nuclear Orders Must Be Proven

KB Securities stated, “The reason why South Korea’s large-scale nuclear power construction capabilities are recognized globally is not merely because we’ve built a lot or built well,” adding, “It is because we have experience completing large-scale nuclear power plants abroad, not just domestically.” This experience has enabled some Korean construction companies to form direct partnerships with global engineering firms, such as Westinghouse, Holtec, and NuScale, beyond just Team Korea.

Daewoo Engineering & Construction is about to secure new orders for the Czech project as the lead company in Korea Hydro & Nuclear Power’s Team Korea initiative. The likelihood of Team Korea winning two units for the Ninh Thuan 2 nuclear power project in Vietnam is also increasing. As Japan’s investment in the United States now includes nuclear and small modular reactor (SMR) businesses, expectations are rising that the Korean government’s investment in the US may also select nuclear power projects. LS Securities analyst Kim Saeryeon explained, “There may be short-term selling pressure after confirmation of US investment, but as order results are gradually confirmed, the stock price is expected to find its proper level.”

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