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Earnings rebound after large-scale cost recognition, but valuation looks demanding

1Q26 review: Earnings rebound strongly following large-scale cost recognition in 4Q25

Following an operating loss of W1.1tr in 4Q25 due to large-scale cost recognition, Daewoo E&C delivered strong 1Q26 results, with consolidated revenue of W1.95tr (-6% YoY) and operating profit of W255.6bn (+68.9% YoY; 119% above the consensus of W116.5bn). The housing cost ratio improved 10%p YoY to 79.2%, serving as the key driver of earnings growth. The housing division benefited from a decline in the estimated total cost ratio at completion, along with around W100bn in one-off gains (contract value adjustments and settlement gains). The company delivered even more pronounced YoY improvement in pretax profit, supported by an increase in “other” income stemming from reversals of impairment losses on development projects.

Overseas nuclear and LNG capabilities coming into focus

The expansion of Daewoo E&C’s overseas nuclear pipeline through Team Korea―with the addition of potential projects in the US and Vietnam (targeted through 2027) alongside the Dukovany project in the Czech Republic―has served as a major catalyst for the stock’s recent rally. In 1H26, the company is expected to secure its first-ever overseas nuclear EPC contract (Dukovany units 5 and 6), while expectations also remain for the Ninh Thuan 2 project in Vietnam. Notably, the company is expanding its presence in Vietnam beyond the Starlake City project by pursuing new city development projects (Kien Giang and Nhon Trach).

The company’s competitiveness in LNG projects is also drawing attention, driven by supply concerns stemming from the Iran conflict. Daewoo E&C’s track record as the lead contractor in a consortium with Saipem and Chiyoda on the Nigeria LNG Train 7 project should help position the company as a credible partner for major global LNG projects. In LNG, the company is targeting additional orders this year from Mozambique (Area 4) and Papua New Guinea.

Raise TP to W35,000; downgrade to Hold

We sharply raise our target price for Daewoo E&C to W35,000 (from W7,900), as we revised up our target P/B from 0.87x to 3.72x (applying a 20% premium to the peak valuation seen during the 2007 Middle East plant order up-cycle). The Iran situation has created a supportive backdrop for the company by driving increased demand for nuclear power and raising concerns over LNG supply, thus highlighting its competitive positioning. Nuclear and LNG are also likely candidates for investments under the Special Act on Investment in the US.

That said, we believe related expectations are now largely priced in. The current share price exceeds the upper end of the multiple range seen during the 2007 Middle East order up-cycle, and the stock is trading at a significant premium to peers (2026F P/B of 3.96x vs. domestic peer average of 1.23x). We downgrade our rating from Buy to Hold.