DL E&C
The author is an analyst for NH Investment & Securities. He can be reached at minjae.lee@nhqv.com -- Ed.
At DL E&C, business remains sluggish at the housing division, as at other construction companies. At the plant division, however, sales growth and cost-to-sales ratio are improving. If S-Oil’s project starts in 2H23, profit growth should materialize in earnest for DL E&C’s non-housing businesses.
Keep an eye on improvement track of non-housing businesses
Although we maintain a Hold rating, we raise our TP on DL E&C from W36,000 to W38,000 on a 6.8% hike to the 12-month moving average EBITDA applied to the construction division. In 1Q23, the plant division recorded sales of W254.3bn (+99% y-y) and cost-to-sales ratio of 81% (-0.9%p y-y). In 2H23, S-Oil's Shaheen project should begin in earnest, offsetting the decline in housing division profits.
1Q23 review: Reports solid earnings
On a consolidated basis, DL E&C posted 1Q23 sales of W1.8tn (+22% y-y) and OP of W90.2bn (-28% y-y), slightly exceeding our OP estimate (W85.9bn) and consensus (W85.3bn). Non-consolidated DL E&C and DL Construction logged cost-to-sales ratios of 89.5% and 94.0%, respectively, but earnings arrived sluggish for the housing divisions of both companies due to additional costs and one-off issues for some projects. However, cost-to-sales ratios at the plant and civil engineering divisions reached 90% and 81%, respectively, making up for the languid housing profitability.
In 1Q23, DL E&C (non-consolidated) and DL Construction recorded housing starts of 1,107 units and 0 units, respectively. Of note, with the housing starts of DL E&C (non-consolidated) sliding from 23,000 units in 2019 to 9,000 units in 2022, sales at the housing division are likely to remain at the W3tn-level for the time being. However, sales and cost-to-sales ratio are strengthening at the plant division, which should bolster overall performance.