1Q22 Engineering & Construction New Orders at KRW4.9tn
The author is an analyst of KB Securities. He can be reached at newday@kbfg.com. -- Ed.
Maintain BUY and TP of KRW150,000
We maintain our 12m TP of KRW150,000 (based on 12m fwd BVPS and target P/B of 0.88x) for Samsung C&T. While we have made upward revisions to 2022E and 2023E NP (attributable to controlling interests) of 17.0% and 19.3%, respectively, our TP remains unchanged as such earnings estimate revisions were offset by changes in yields for 1y MSB and 30y KTB, which we use as proxies for risk-free rate and terminal growth rate, as well as in market risk premium (KB Securities Research: 7.37% for 2021 → 7.16% for 2022E). We maintain BUY as shares offer potential upside of 38.9%, or 41.2% including dividends (vs. Apr 27 close).
1Q22 revenue and OP exceed thresholds of KRW10tn and KRW500.0bn, respectively
Samsung C&T posted 1Q22 (K-IFRS consolidated) revenue of KRW10.44tn (+33.2% YoY) and OP of KRW541.6bn (+79.0% YoY; 5.2% OPM), delivering a positive earnings surprise with revenue and OP exceeding consensus by 24.5% and 54.1%, respectively. EBT and NP also came in far above expectations thanks to KRW271.3bn in dividend income from affiliates.
Positive earnings surprise catalyzed by robust Trade & Investment results
The biggest contributor to the 1Q22 earnings surprise was Trade & Investment, which posted revenue of KRW5.78tn (+53.0% YoY) and OP of KRW190.0bn (+127.0% YoY; 3.3% OPM). Strong commodity prices, margin improvements at overseas operations (e.g., Romania, Indonesia), and disposal of rights to the solar plant project in the U.S. (KRW40.0bn) bolstered Trade & Investment earnings. Meanwhile, Engineering & Construction also saw its revenue and OP improve YoY on smooth progress in projects for affiliates (i.e., Phase 3 construction of SEC’s Pyeongtaek plant). Fashion and Bio earnings climbed sharply as well.
1Q22 Engineering & Construction new orders at KRW4.9tn (42% of 2022 guidance)
Engineering & Construction new orders in 1Q22 amounted to a total of KRW4.9tn, including KRW2.2tn for Phase 3 construction of SEC’s Pyeongtaek plant, KRW0.6tn for a combined cycle power plant in Vietnam, KRW0.6tn for SDR Tower in Giheung, and KRW0.4tn for a reconstruction project in Bangbae. Given that new orders in 1Q22 correspond to 42% of guidance for the full year (KRW11.7tn), the chances of the company overachieving its annual target this year have increased. Backed by robust new orders, the order backlog rose to KRW27.2tn.