Earnings at Samsung C&T have been leveling upwards on strong earnings at the construction division through captive clients and brisk growth at the bio division. Based on such, the firm has announced plans to: 1) expand investment to strengthen its business portfolio; and 2) retire all of its treasury share holdings (13.2% of outstanding shares) over the next five years. The company’s shares are trading at a 63% discount to NAV.
To beef up new businesses and shareholder value
Earnings at Samsung C&T have been leveling upwards on strong earnings at the construction division via captive clients, brisk growth at the bio division, and the fading of pandemic effects at the company’s other divisions. At the bio division, capacity expansion is underway. Over the next three years, the firm plans to invest W2tn to strengthen the competitiveness of its existing businesses and W2tn to discover new businesses such as green energy, bio, and healthcare.
Concerns toward a potential overhang issue have eased alongside a reduction in the controlling shareholder family’s stake to 31.1% through a disposal of 0.65% of the shares to pay inheritance tax. Market expectations for increased shareholder value are rising due to shareholder letters sent by global hedge funds. As the three-year shareholder return policy regarding dividends was announced at the beginning of the year, plans to cancel 13.2% of treasury shares are expected to materialize rather than a change in dividend policy.
Reiterating a Buy rating, we raise our TP on Samsung C&T from W150,000 to W160,000 to reflect both a higher earnings outlook and changes in share prices for listed affiliates.
4Q23 preview: To show OP growth for ninth consecutive quarter
Samsung C&T should post 4Q23 sales of W10.582tn (-1% y-y) and OP of W698.9bn (+10% y-y), satisfying consensus.
Despite a likely slip in high-tech project sales, we believe that overall margins at the construction division (OP of W262.3bn, +9% y-y) remained stable q-q on both a strengthening in overseas projects and expansion of the firm’s housing business. Likely weak trading demand for the trading division (OP of W34.4bn, +91% y-y) should be partially offset by increased solar power sales. The F&B division (OP of W31.2bn, +3,019% y-y) is to show higher sales for both external catering and food ingredients. We expect the fashion division (OP of W51bn, +6% y-y) to book healthy sales for imported products and its online domain.