Samsung Securities announced on August 5 that it has raised its target price for Daewoo Engineering from 9,200 won to 21,000 won, an increase of 128.3%. This adjustment comes as the company is expected to recover its profitability quickly after reflecting last year's significant losses and anticipates securing large overseas projects in the second half of the year. The investment recommendation remains a 'buy.'
Heo Jae-jun, a researcher at Samsung Securities, stated, "We have adjusted the target price to reflect the improved profitability levels following the Big Bath accounting treatment and unprecedented order momentum. In the second half, we expect solid profit improvements in the construction sector, a recovery in the plant sector's profitability, and significant new orders to occur simultaneously."
For the second quarter, Daewoo Engineering reported consolidated sales of 2.0435 trillion won, a 10.1% decrease from the same period last year, while operating profit surged by 182.6% to 232.3 billion won, exceeding market consensus of 160 billion won by 45.2%.
The improvement in profitability in the construction sector drove the results. The gross profit margin (GPM) for the construction sector reached 21.6%, the highest quarterly figure since 2015. Although one-time gains of approximately 82.9 billion won from completion settlement profits and contract increases were included, the gross profit margin remained high at 15.6% when excluding these factors. Samsung Securities analyzed that the normalization of cost rates following last year's Big Bath in the fourth quarter is now showing results.
In the plant sector, profitability temporarily declined due to rework and extension costs for the Nigeria T7 project. However, the company expects to recover some of these costs through claims after completion and anticipates a return to normal levels starting in the third quarter.
Daewoo Engineering has also raised its new order target for the year from 18 trillion won to 27 trillion won, a 50% increase. This adjustment reflects the heightened likelihood of contracts for large projects, including the Czech Dukovany nuclear power plant, Papua New Guinea LNG Central Processing Facility (CPF), Nigeria Indorama fertilizer plant, Mozambique LNG Area 4, and the Gadeokdo new airport.
Heo noted, "The total scale of these five projects is estimated at around 18 trillion won, and even if only half is reflected within the year, achieving the order target is feasible. We expect about 20 trillion won in new orders in the second half alone."
* This article has been translated by AI.
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