Fourth TP Hike in a Year
The author is an analyst of NH Investment & Securities. He can be reached at minjae.lee@nhqv.com. -- Ed.
Among Korean construction plays, IS Dongseo has been the most aggressive in new business expansion. With the vertical integration of a waste treatment value chain already completed, related sales and OP should exceed W400bn and W80bn, respectively. In addition, the PHC pile business is to serve as a new growth driver going forward. In-house projects in the Goyang Deokeun and Gyeongsan Junsan districts are also important investment points.
Fourth TP hike in a year
Reiterating a Buy rating, we raise our TP on IS Dongseo from W75,000 to W88,000, as: 1) we hike our target EV/EBITDA multiple for the construction business from 5.0x to 5.5x; and 2) we revise up the book value of Youngpoong Pile (100% stake) and its concrete pile business from W90bn to W326.3bn, amid improving business conditions in the pretensioned spun high strength concrete (PHC) pile market. Of note, our TP reflects W262.5bn for the Goyang Deokeun district project and W400bn for Gyeongsan Jungsan district project based on their land values, but these figures should be revised up upon progress in pre-sale events. We maintain IS Dongseo as a sector top pick.
TP equals 2021E P/E of 10x, a very comfortable valuation
As of 4Q20, the firm’s debt ratio stood at 160%, with net debt of W1.0tn (consolidated basis), figures that are higher than the sector averages due mainly to land purchases and M&As of waste treatment companies back in 2018. However, given that: 1) such actions are designed to secure new businesses; and 2) in-house projects and contract projects generate a sizable amount of cash flow, we do not view the debt level as burdensome. As for the Gyeongsan Jungsan district project, with document work (including land usage change and construction approval) set to be completed by end-2021, related apartment pre-sale events should start in earnest from 1H22. As was the case for the Yongho-dong project in 2014, we predict that the commencement of actual construction work will lead to valuation re-rating for the firm. Our TP is equivalent to a 2021E P/E of 10x.