Revenue Jumps 40.7% YoY
The author is an analyst of KB Securities. He can be reached at moonjoon.chang@kbfg.com. -- Ed.
Stable 3Q22 earnings excl. one-offs
— Samsung Engineering posted 3Q22 preliminary consolidated revenue of KRW2.5tn (+40.7% YoY, -1.4% QoQ), OP of KRW160.5bn (+15.5% YoY, +4.6% QoQ) and NP (attributable to controlling interests) of KRW164.5bn (+52.3% YoY, +17.1% QoQ).
— Excl. one-offs, earnings were stable. Revenue was particularly sound, with full-fledged progress for both hydrocarbon and non-hydrocarbon projects.
— Revenue jumped 40.7% YoY:
(1) Hydrocarbon revenue was robust on smooth progress for Mexico Dos Bocas (50% complete), Malaysia Sarawak (61%), Saudi Arabia Unaizah (76%) and Saudi Arabia APOC (32%). The four projects account for 74% of Hydrocarbon revenue.
(2) Non-hydrocarbon revenue came in strong with brisk order wins (KRW4.1tn in 2020→KRW4.1tn in 2021→KRW4.3tn as of 3Q22).
— In terms of non-operations, a KRW47.5bn FX translation gain was reflected.
— Net cash is estimated at KRW1.0tn as of end-3Q22, KRW1.2tn by year-end.
3Q22 cumulative new order wins at KRW6.47tn (vs. annual guidance of KRW8.0tn), with Hydrocarbon at KRW2.22tn, Non-hydrocarbon at KRW4.25tn
— 3Q22 cumulative new order wins reached KRW6.47tn, with Hydrocarbon at KRW2.22tn and Non-hydrocarbon at KRW4.25tn.
— Non-hydrocarbon order wins continue to be solid thanks to aggressive investment activity at affiliates.
— Major hydrocarbon order wins include the Russia Baltic ethane cracker project and Malaysia Shell OGP (excl. recently announced undisclosed Middle East hydrocarbon project).
— Overseas pipeline is at USD12.5bn (eight bids worth USD10.3bn completed; one order in bidding process; in preparation for additional bid):
(1) Jordan oil refining project (KRW1.5tn): Results expected in 4Q22
(2) Saudi Arabia Amiral Complex project (KRW2.0tn): Results expected in 4Q22-2023
(3) Algeria PDH/PP (KRW2.0tn): Results expected in 4Q22
(4) India MEG project (KRW0.9tn): Results expected next year
(5) Saudi Arabia Jafurah 2, UAE Hail & Ghasa project: Rapid progress expected
— Seven FEED works in progress (Samsung Engineering holds rights to transition to EPC in three projects, two dual FEED contracts, two triple FEED contracts).
Stable earnings; beneficiary of favorable operating conditions; ecofriendly projects to command stock performance over long term
— Hydrocarbon posted stable 3Q22 earnings amid brisk revenue generation, with COGS ratio improving (2Q22 hit by one-off).
— Samsung Engineering stands to benefit from progress in order placements by Middle East’s major NOCs (mainly gas projects).
— However, high revenue and order backlogs should act as a high base. Assuming KRW9.5-10.0tn in annual avg. revenue for 2022-23, over KRW10.0tn in orders would need to be won per year for growth in order backlogs.
— 3Q22 order backlog totaled KRW17.8tn (vs. 1Q22 order backlog of KRW17.2tn).
— Favorable industry conditions and the prospect of order wins should provide downward resistance for the stock price. Visible achievements in the ecofriendly plant space and subsequent transformation of business model should command stock performance going forward.