Samsung C&T
The author is an analyst of NH Investment & Securities. He can be reached at dongyang.kim@nhqv.com -- Ed.
Earnings at Samsung C&T have leveled up thanks to stable earnings at the construction division, brisk growth at the bio division, and the fading of Covid-19 effects. Based on this, Samsung C&T has announced plans to: 1) expand investment to strengthen its business portfolio; and 2) retire all of its held treasury shares. The shares are currently trading at a 65% discount to NAV.
Strengthening shareholder return and new businesses based on leveled-up profits
Earnings at Samsung C&T have leveled up thanks to stable earnings at the construction division, brisk growth at the bio division, and the fading of Covid-19 effects. At the construction division, order backlog is expanding and earnings remain stable thanks to captive clients. At the bio division, capacity expansion is underway.
As part of its shareholder return policy, 60~70% of dividend income from affiliates will be paid out as dividends. In addition, all of its held treasury shares (13.2% of common stock, 9.8% of preferred stock) will be retired over a five-year period. As a result, total annual average shareholder return should reach W1tn, including W400bn in dividends and W600bn in treasury stock retirement, which is roughly 5.0% of Samsung C&T’s market cap.
The company plans to invest up to W4tn over the next three years to strengthen its business, including W2tn to bolster the competitiveness of existing businesses and W2tn to discover new eco-friendly energy/bio/healthcare ventures. In the US market, the solar power business is generating annual profits of W50bn, and solar power development pipelines are being secured. The firm is also in the process of entering the Australian market. Biotechnology investment is expanding through Life Science CVC Fund.
1Q23 review: Records solid earnings at all divisions
Samsung C&T reported 1Q23 sales of W10,238.6bn (-2% y-y) and OP of W640.5bn (+18% y-y), with both figures exceeding the market projections.
The construction division (OP of W292.0bn, +88% y-y) led earnings on full-fledged progress for orders received last year (last year’s orders exceeded the target, mainly centering on high-tech projects). In 1Q23, new orders reached 44% of the annual target at W6.1tn, again focusing on high-tech projects. The trading division (W99.0bn, -48% y-y) posted solid results thanks to profits of W26.0bn generated from the sale of the US solar power development business and improved margins at the precision manufacturing plant, despite a drop in sales due to decreased raw material demand and prices. At the fashion division (W57bn, +36% y-y), profitability improved thanks to increased sales of high-margin products and stronger online sales, despite concerns over slowing domestic apparel consumption. Profitability at the F&B division (W29bn, +107% y-y) also improved on greater demand for catering, increased sales of foodstuff, and normalization of expenses related to external business expansion. At the leisure division (-W22bn, RR y-y), losses narrowed on a y-y acceleration in out-of-the-home activity, despite off-peak seasonality.