Company Report (72 KS) Construction OP margin to bottom in 2Q but pick up in Q Maintain Buy call with TP of W15, We maintain our Buy call on with a target price of W15,. The company received overseas orders of US$5.bn in 1H. Furthermore, the company is highly likely to take orders for a causeway bridge project in Subiya, Kuwait (US$2.1bn). And overseas projects from which the company is pushing to take orders are worth US$12.6bn, including: 1) a LNG project in Nigeria (US$bn), 2) a power plant in Jeddah, Saudi Arabia (US$bn), ) a gas oil separation plant in Zubair, Iraq (US$2bn), and 4) a co-generation power plant in Vung Ang, Vietnam (US$1.6bn). As such, we believe that the company will be able to meet its 212 order target of US$1bn. Nevertheless, we project Ês OP margin to hit a bottom in 2Q due to one-off housing-related provisioning costs. However, we forecast the companyês OP margin to pick up to more than 6.% in Q. Taking into account these expected improvements in fundamentals (i.e., overseas order growth and OP margin recovery) as well as the companyês valuation merits, we expect Ês shares to appreciate starting in Q. 2Q Preview: Revenues and OP forecast at W.27tr and W178.2bn For 2Q, we project Ês earnings to fall short of the consensus, with revenues of W.27tr (up 1.8% YoY), an operating profit of W178.2bn (down 5.2% YoY; OP margin of 5.5%), and a net profit of W145.7bn (down 16.% YoY; net profit margin of 4.5%), under consolidated K-IFRS. In 2Q, overseas earnings should continue to drive revenue growth, maintaining stable GP margin of 1.9% (down.4%p YoY; up.2%p QoQ). We expect Ês OP margin to trend up towards 2H, rising from 5.7% in 1Q, to 5.5% in 2Q, 6.% in Q, and to 6.5% in 4Q. Once the companyês purchase and cost management system takes firm roots next year, OP margin should rise further to 6.8% on the back of higher GP margin and lower SG&A-to--sales ratio, signaling a full swing pick-up in the companyês margins going forward. Ample valuation merits; Shares trading at historic-low multiples Ês shares are trading at historic-low levels (212F P/E of 1.7x; 212F P/B of 1.4x; 21F P/E of 8.1x; 21F P/B of 1.2x). Although the companyês stock is faring poorly due to macro issues, we recommend that investors accumulate shares in light of the companyês improving fundamentals and valuation merits. Earnings & Valuation Metrics FY Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x) 12/1 11,78 72 6.4 51 4,64 862 268 15. 15.7 2.1 8.6 12/11 11,92 754 6. 65 5,71 812-196 15.8 12.4 1.9 9. 12/12F 1,11 779 5.9 641 5,751 815 91 14.2 1.7 1.4 7.7 12/1F 15,251 1, 6.8 851 7,62 1,7 511 16.2 8.1 1.2 5.5 12/14F 17,842 1,27 7.4 1,9 9,88 1,61 621 17.7 6. 1. 4. Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, estimates Daewoo Securities Co., Ltd. Daniel Song +822-768-2122 hi.song@dwsec.com Buy (Maintain) Target Price (12M, W) 15, Share Price (7/12/12, W) 61,5 Expected Return (%) 7.7 EPS Growth (12F, %).9 Market EPS Growth (12F, %) 17.1 P/E (12F, x) 1.7 Market P/E (12F, x) 9. KOSPI 1,785.9 Market Cap (Wbn) 6,848 Shares Outstanding (mn) 111 Avg Trading Volume (6D, ') 55 Avg Trading Value (6D, Wbn) 7 Dividend Yield (12F, %) 1.1 Free Float (%) 65.1 52-Week Low (W) 49,6 52-Week High (W) 91,4 Beta (12M, Daily Rate of Return) 1.9 Price Return Volatility (12M Daily, %, SD) 2.8 Foreign Ownership (%) 17.7 Major Shareholder(s) Hyundai Motor et al. (4.91%) NPS (9.%) Price Performance (%) 1M 6M 12M Absolute -2.5-12. -28.5 Relative 1.2-8. -1.1 Key Business Engaging in the civil works, construction, housing, and plant segments in Korea and overseas. 11 1 9 8 7 6 5 4 Share price KOSPI 7/11 11/11 /12 7/12 Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S.
Table 1. Quarterly earnings forecasts (Wbn) 211 212F % YoY 1Q 2Q Q 4Q Year 1Q 2QF QF 4QF Year Year Revenues 2,286 2,87 2,962,8 11,92 2,76,266,295,84 1,11 1. Operating profit 14 188 271 15 754 15 178 198 25 779. Pretax profit 149 248 298 156 851 161 195 215 284 855.5 Net profit 121 17 22 121 65 116 146 162 218 641.9 OP margin (%) 6.2 6.5 9.1 4. 6. 5.7 5.5 6. 6.5 5.9 Net margin (%) 5. 6. 7.4.2 5. 4. 4.5 4.9 5.7 4.9 Note: Based on consolidated K-IFRS, Source: Company data, Table 2. Revisions to annual earnings forecasts Previous Revised % Chg. (Wbn) 12F 1F 14F 12F 1F 14F 12F 1F 14F Revenues 1,472 15,695 18, 1,11 15,251 17,842-2.7-2.8-1. Operating profit 849 1,126 1,41 779 1, 1,27-8.2-8. -6.1 Net profit 71 944 1,19 641 851 1,9-9.7-9.9-8.2 OP margin (%) 6. 7.2 7.8 5.9 6.8 7.4 - - - Net margin (%) 5. 6. 6.6 4.9 5.6 6.1 - - - EPS(W) 6,7 8,467 1,681 5,751 7,62 9,88-9.7-9.9-8.2 Note: Based on consolidated K-IFRS, Source: Figure 1. P/B trend 5 (x) 12M Fwd P/B 4 Avg+1STD:.x Avg: 2.4x 2 1 2 4 5 6 7 8 9 1 11 12 Source: Figure 2. P/E band Figure. P/B band (Wtr) 12 17.x (Wtr) 12 2.5x 9 14.x 9 2.x 11.x 1.5x 6 8.x 6 1.x 5.x.5x 1 2 4 5 6 7 8 9 1 11 12 1 2 4 5 6 7 8 9 1 11 12 Source: Source: 2
(72 KS/Buy/TP: W15,) Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/11 12/12F 12/1F 12/14F (Wbn) 12/11 12/12F 12/1F 12/14F Revenues 11,92 1,11 15,251 17,842 Current Assets 8,711 9,289 1,418 11,789 Cost of Sales 1,752 11,887 1,745 15,991 Cash and Cash Equivalents 1,862 2,221 2,688,279 Gross Profit 1,168 1,224 1,56 1,851 AR & Other Receivables 4,1 4,77 4,529 5,49 SG&A Expenses 4 444 47 524 Inventories 1,28 1,246 1,7 1,517 Operating Profit (Adj) 76 78 1, 1,27 Other Current Assets 1,42 1,442 1,525 1,641 Operating Profit 754 779 1, 1,27 Non-Current Assets,161,568,89 4,162 Non-Operating Profit 97 76 97 116 Investments in Associates 85 81 76 71 Net Financial Income -2 9-11 Property, Plant and Equipment 1,12 1,158 1,124 1,9 Net Gain from Inv in Associates -12-5 -5-5 Intangible Assets 44 71 7 68 Pretax Profit 851 855 1,1 1,44 Total Assets 11,872 12,857 14,257 15,951 Income Tax 166 189 254 25 Current Liabilities 5,77 5,82 6,164 6,66 Profit from Continuing Operations 685 666 876 1,118 AP & Other Payables,44,17,9,586 Profit from Discontinued Operations Short-Term Financial Liabilities 77 466 491 526 Net Profit 685 666 876 1,118 Other Current Liabilities 1,992 2,229 2,64 2,551 Controlling Interests 65 641 851 1,9 Non-Current Liabilities 1,76 2,4 2,29 2,64 Non-Controlling Interests 5 25 25 25 Long-Term Financial Liabilities 1,19 1,254 1,27 1,288 Total Comprehensive Profit 52 78 917 1,16 Other Non-Current Liabilities 554 714 896 1,4 Controlling Interests 45 68 892 1,15 Total Liabilities 7,58 7,842 8,44 9,27 Non-Controlling Interests 48 25 25 25 Controlling Interests 4,2 4,82 5,646 6,692 EBITDA 812 815 1,7 1,61 Capital Stock 557 557 557 557 FCF (Free Cash Flow) -196 91 511 621 Capital Surplus 828 8 8 8 EBITDA Margin (%) 6.8 6.2 7. 7.6 Retained Earnings 2,675,259 4,2 5,6 Operating Profit Margin (%) 6. 5.9 6.8 7.4 Non-Controlling Interests 16 182 27 22 Net Profit Margin (%) 5. 4.9 5.6 6.1 Stockholders' Equity 4,64 5,14 5,85 6,924 Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/11 12/12F 12/1F 12/14F 12/11 12/12F 12/1F 12/14F Cash Flows from Op Activities -2 8 58 618 P/E (x) 12.4 1.7 8.1 6. Net Profit 685 666 876 1,118 P/CF (x) 11. 1.2 7.7 6.1 Non-Cash Income and Expense 455 159 194 24 P/B (x) 1.9 1.4 1.2 1. Depreciation 75 2 4 2 EV/EBITDA (x) 9. 7.7 5.5 4. Amortization 2 EPS (W) 5,71 5,751 7,62 9,88 Others -24 61 75 75 CFPS (W) 6,87 6,61 7,964 1,119 Chg in Working Capital -1,11-22 -8-418 BPS (W) 7,66 42,774 5,95 59,492 Chg in AR & Other Receivables -476-176 -452-52 DPS (W) 5 7 8 9 Chg in Inventories 28-127 -144 Payout ratio (%) 8.8 12.2 1.5 9.2 Chg in AP & Other Payables -252-6 22 277 Dividend Yield (%).7 1.1 1. 1.5 Income Tax Paid -229-195 -254-25 Revenue Growth (%) 4.8 1. 16. 17. Cash Flows from Inv Activities 15-8 78 9 EBITDA Growth (%) -5.8. 1. 27.2 Chg in PP&E -66-1 Operating Profit Growth (%) 4.. 2.6 28.4 Chg in Intangible Assets -1-1 -1-1 EPS Growth (%) 2.8.9 2.7 28.5 Chg in Financial Assets -19-48 Accounts Receivable Turnover (x).8.8 4.1 4.2 Others 11-21 79 94 Inventory Turnover (x) 9.1 1.4 11.7 12.4 Cash Flows from Fin Activities 5 12-119 -12 Accounts Payable Turnover (x) 4. 4.6 5.5 6. Chg in Financial Liabilities 425 2 42 52 ROA (%) 6. 5.4 6.5 7.4 Chg in Equity ROE (%) 15.8 14.2 16.2 17.7 Dividends Paid -8-56 -78-89 ROIC (%) 2.7 2.4 24.7 28.7 Others -4-71 -8-8 Liability to Equity Ratio (%) 172.1 156.4 14.6 1.4 Increase (Decrease) in Cash 121 59 467 591 Current Ratio (%) 15.9 16.1 169. 176.9 Beginning Balance 1,741 1,862 2,221 2,688 Net Debt to Equity Ratio (%) -12.4-16. -21. -25.5 Ending Balance 1,862 2,221 2,688,279 Interest Coverage Ratio (x) 17.7 1.7 12.5 16. Source: Company data, estimate
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Stock Ratings Industry Ratings Buy Relative performance of 2% or greater Trading Buy Relative performance of 1% or greater, but with volatility Hold Relative performance of -1% and 1% Sell Relative performance of -1% Overweight Fundamentals are favorable or improving Neutral Fundamentals are steady without any material changes Underweight Fundamentals are unfavorable or worsening (W) 15, 1, 5, 7/1 1/11 7/11 1/12 7/12 * Ratings and Target Price History (Share price (----), Target price (----), Not covered ( ), Buy ( ), Trading Buy ( ), Hold ( ), Sell ( )) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analystês estimate of future earnings. 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