Samsung C&T: Expect Stable Earnings and Enhanced Shareholder Value

The author is an analyst of NH Investment & Securities. He can be reached at dongyang.kim@nhqv.com. — Ed. 

Earnings at Samsung C&T have leveled up thanks to stable earnings at the construction division, brisk growth at the bio division, and the resolution of Covid-19 impacts. Moves to strengthen its business portfolio are in full swing. Benefits are also expected from governance factors, such as an expansion of dividend payment to finance inheritance tax for major shareholders and a strengthening of the firm’s status within Samsung Group. Samsung C&T is currently trading at a 60% discount to NAV.

Expect stable earnings and enhanced shareholder value

In 2022, OP at Samsung C&T leveled up to W2,528.5bn (+111% y-y) on strong growth at the bio division, stable earnings increase centered on captive construction clients, and an easing of Covid-19 impacts at other divisions.
Samsung C&T has presented sales of W40.4tn (-6% y-y) and new orders of W13.8tn (-18% y-y) as its 2023 management targets. We attribute the muted figures to expectations for top-line decrease at the trading division owing to raw material price decline and dollar/won rate effects. Of note, Samsung C&T exceeded its construction order target in 2022. As orders landed in 2022 are to be recognized as sales in 2023, the firm’s strengthened level of OP (2023E: W2,461.3bn, -3% y-y) should remain intact.

Samsung C&T has canceled 1.3mn treasury shares (0.7% of outstanding shares), and it plans to soon announce new shareholder return policy, including dividend policy for 2023~2025 and plans for the remaining treasury shares (11.9% of total).

4Q22 review: Earnings meet expectations

Samsung C&T reported 4Q22 sales of W10,647.7bn (+9% y-y) and OP of W634.2bn (+94% y-y), meeting our expectations.

At the construction division (OP of W241.0bn, +81% y-y), OPM reached 6.0% despite the absence of one-off profits (approximately W90.0bn) recorded in 3Q22. Orders came to W16.9tn (+30% y-y), exceeding the highly raised annual target. The fashion division (OP of W48bn, +140% y-y) posted solid OPM of 9% on increased online sales, brisk sales of imported products, and strong seasonality. At the leisure division (OP of W11bn, +175% y-y), y-y earnings improvement continued. Meanwhile, OP at the trading division (W18bn, -55% y-y) fell both q-q and y-y due to a drop in global trade volume. Earnings at the F&B division (OP of W1bn, -92% y-y) also arrived sluggish, affected by increased food costs and expenses related to external business expansion.

We forecast 1Q23 OP of W521.1bn (-4% y-y), anticipating solid earnings at the construction and fashion divisions and a gradual recovery at the trading division.