Push for Eco-friendly Plant Business
The author is an analyst of KB Securities. He can be reached at moonjoon.chang@kbfg.com. -- Ed.
Maintain BUY, target price of KRW62,000
We maintain BUY and TP of KRW62,000 (0.54x 12m fwd P/B) on DL E&C. Despite the market’s growing hope for overseas orders, DL E&C’s efforts to expand its overseas plant business have yet to be priced in. We expect the company to recover from its gross undervaluation as its efforts bear fruit from 4Q22 to 1H23. As such, we recommend DL E&C as our near-term top pick.
Low overseas exposure weighing on stock; excessive discounts to fade once plant push reaffirmed
Following the Korean government’s Aug 16 real estate measures, builders have seen their stock performance diverge based on level of exposure to overseas projects. DL E&C, which is considered to have low overseas exposure, dropped below 0.35x 12m fwd P/B. Given its recent expansion efforts, we believe the market’s discounts (due to the company being ignored/misunderstood) are excessive.
Renewed push for petrochemical plant business based on FEED-to-EPC order wins
DL E&C has been considered to be too passive in the overseas/plant project market, as it has been refraining from overextending itself to win orders. Recently, however, it seems to have been resuming efforts to expand Plant via FEED-to-EPC orders for petrochemical plants. Currently, the company has:
(1) submitted a bid for the PE Derivative package (USD2.0bn) of Qatar’s Ras Laffan Petrochemicals Complex (FEED order won in Dec 2020 and completed);
(2) targeted the EPC order for the USGC project (USD0.5bn; FEED already won); and
(3) planned to bid for the EPC of NeuRizer’s eco-friendly fertilizer plant and CCUS project (KRW2tn total) once it completes the FEED.
Push for eco-friendly plant business
DL E&C is active in eco-friendly plant markets:
(1) An MOU to collaborate on EPC with Canada’s Terrestrial Energy (developer of fourth-generation nuclear reactors) was signed, indicating entry into the business of small module reactors.
(2) The company is ramping up its CCUS business, targeting cumulative domestic/overseas orders of KRW1tn by 2024 and scaling up orders by KRW2tn every year through 2030.