The author is an analyst for NH Investment & Securities. He can be contacted at [email protected] – Ed.
In addition to attractive valuations, from 2022, the growing share of DL E & C’s self-development activities within the housing division and the increase in new orders for CCUS projects should stand out. DL E&C shares are trading at a P / E 2021E and 2022F of 5x and 4x, respectively.
Foundation for profit dynamics being built via multiple pathways
We maintain a buy rating and a TP of 230,000 W on DL E&C, a second preferred place in the construction sector. We look favorably on: 1) increasing orders for self-development projects, which are more profitable than general urban redevelopment or outsourcing projects; 2) completed and ongoing orders for environmentally friendly CCUS projects; and 3) its attractive P / E 2021E (compared to large companies) of 5x, even taking into account the valuation dilution effects of the DL Construction subsidiary.
Emphasize the importance of: 1) self-development enterprise; and 2) environmentally friendly company
DL E&C is developing in terms of self-development projects. Of the company’s annual target for self-development projects of 1.2tn W, 1.0tn W was probably achieved in 3Q21. For reference, the share of self-development projects with public sector partners and private sector partners is 70% and 30% respectively. It should be noted that self-development projects usually have higher profit margins, as the company can get profit on both development and construction. In addition, DL E&C has planned a Carbon Dioxide Capture, Storage and Utilization (CCUS) project with Daesan Power and Hyundai Oilbank from August 2021. Already having experience with CCS EPC from 2013, DL E&C is expected to now become a CCUS EPC Reader with a balance sheet of 1mn tonnes (in annual capacity) of CCUS EPC.
Overview of 3Q21: to report smooth sailing
DL E&C is expected to post 3Q21 consolidated revenue of 1.9 billion won (+ 3% qt) and a PO of 204.9 billion won (-11% qt), in line with consensus. On an unconsolidated basis, the volume of pre-sales of apartments probably reached 11,000 units in 3Q21. We expect the annual pre-sale target of 21,000 units to be met without difficulty. In 3Q21, new orders received on an unconsolidated basis likely amount to W 4.2bn, a figure that should put the annual target within reach.