Brisk Earnings Momentum
The author is an analyst of NH Investment & Securities. He can be reached at dongyang.kim@nhqv.com. -- Ed.
Samsung C&T’s bio, trading, and fashion divisions are showing brisk earnings momentum. The firm is moving forward to strengthen its business portfolio. Benefits stemming from a governance issue are also likely, including higher dividend payouts (following the initiation of inheritance processes) and a strengthening of the company’s status within the Samsung Group. Its shares are currently trading at a 66% discount to NAV.
Looking forward to earnings momentum, portfolio strengthening, and benefits stemming from governance issue
Samsung C&T’s annual OP is set to rise to W1,455.9bn (22% y-y) in 2022, helped by an improved utilization rate at its bio division, strong market conditions for the trading division, and a rapid earnings recovery at its fashion/leisure division. Even without considering the value of Samsung C&T’s in-house businesses, tangible & intangible assets, and treasury shares, the total value of its stakes in listed affiliates (including Samsung Electronics (SEC; 5.0%) and Samsung Biologics (43.4%)) is estimated to reach W49tn, a level more than twice its current market cap. Furthermore, Samsung C&T is aiming to beef up its business portfolio, focusing on the main three prongs of bio, eco-friendly energy (solar, hydrogen), and digital investments. These plans include directing W150bn towards venture funds (mainly for life science and construction technology) and exploring new business opportunities.
While controlling shareholder family’s stock disposals have begun amid an inheritance process, Samsung C&T (which stands at the top of the Samsung Group’s governance structure with a controlling shareholder family’s stake of 31.6%) has not been included in the disposal stocks list. Also, SEC and Samsung C&T will likely increase dividend payments to finance inheritance taxes, and business restructuring is predicted for the purposes of earnings growth and the strengthening of Samsung C&T’s status within the Samsung Group.
4Q21 review: Rebounding on normalized construction division earnings
Samsung C&T reported 4Q21 sales of W9.765tn (+19% y-y) and OP of W327.2bn (+28% y-y), with OP slightly missing consensus. Although the construction division shook off last quarter’s one-off cost effects (W200bn), there was overall cost increase around yearend.
The construction division (4Q21 OP 133bn, -1% y-y) achieved 121% of its annual order target guidance, securing W13tn worth of orders last year—2022 guidance has been set at W11.7tn. Operating income for the leisure division (4Q21 OP of 4bn (TTP y-y)) entered positive territory for the first time since the start of the Covid-19 crisis. The fashion division (4Q21 OP 20bn, +122% y-y) also posted robust earnings, benefiting from higher demand for luxury items and strong online shopping. Earnings for the trading division (4Q21 OP W40bn, +233% y-y) lost some luster q-q due to decreased trading volume and higher logistics costs. Profitability at the firm’s F&B arm (W13bn, -43% y-y) was dampened by costs for strengthening the competitiveness of its in-house cafeteria business in line with revisions to the Fair Trade Act.