Worth Paying Attention Once Uncertainties Vanish
The author is an analyst of NH Investment & Securities. He can be reached at minjae.lee@nhqv.com. -- Ed.
From 4Q21, move-in has started for construction projects whose sales are recognized upon delivery, and accordingly, related sales were likely reflected in IS Dongseo’s 4Q21 sales. We forecast the firm will continue to book sound top-line growth in 2022, thanks to pre-sale events in Goyang and Gyeongsan projects. The company’s environment-related subsidiaries should prove favorable for its valuations.
Worth paying attention once uncertainties vanish
Although we lower our TP on IS Dongseo from W80,000 to W70,000, we adhere to a Buy rating, noting: 1) sales have begun to be realized for in-house projects for which sales are recognized at the point of delivery; and 2) projects in Deukun, Goyang and Jungsan, Gyeongsan are slated for pre-sale events in 1H22 and 2H22, respectively. But, we downwardly revise our TP in light of a cut in 2022F EV/EBITDA for the construction arm from 5.5x to 5.0x, given short-term uncertainties stemming from: 1) presidential hopefuls’ differing real estate pledges in the run-up to the March presidential election; and 2) construction materials supply-demand issues.
Among the firm’s in-house projects, sales are booked for Dong Daegu Eileen’s Garden (W320bn) in 4Q21, Anyang IS Biz Tower (W480bn) in 1Q22, and Deukun DMC Eileen’s Garden (W140bn) in 3Q22. The company is also set to undertake pre-sale events for a knowledge industrial center built on three out of remaining seven parcels of land in Deukun, Goyang in 1H22, and for an apartment complex in Jungsan, Gyeongsan in 2H22.
IS Dongseo has expanded the waste treatment business in addition to the housing business. The company has invested either directly or via PEFs in Insun ENT, Koentec, and Environmental Energy Solutions, and it has made an equity investment in Town Mining Company, a company boasting technology to produce cobalt compounds from scraps generated in the process of rechargeable battery production.
4Q21 preview: Sales from Eileen’s Garden (delivery-basis sales recognition project) reflected in 4Q21
IS Dongseo should deliver consolidated 4Q21 sales of W689.0bn (+108% y-y) and consensus-meeting OP of W126.9bn (+132% y-y). Of particular note, the firm is to book more than W280bn in sales from Dong Daegu Eileen’s Garden (delivery basis sales recognition), the move-in rate for which is estimated to exceed 90%. Elsewhere, we believe that OPM exceeded 17% at the environment division and 10% at the concrete division.