"Kolon Global Begins Recovery After Big Bath... Target Price Maintained" [Click e-Stock]
Profitability Returns to the Black in Q1
Following Large-Scale Recognition of Losses
Hyundai Motor Securities has maintained its "Buy" investment rating and target price of 13,000 won for Kolon Global, stating that the company’s performance has begun to recover following a "big bath" (large-scale recognition of losses) in the fourth quarter of last year. This suggests a potential upside of 34.7% compared to the closing price of 9,650 won on the 15th.
On the 17th, Donghyun Shin, a researcher at Hyundai Motor Securities, explained, "At the end of last year, Kolon Global took a big bath amounting to 240 billion won, due to rising costs in the civil engineering division, unsold inventory in the housing and construction division, and deteriorating profitability of local housing cooperatives. By addressing all foreseeable expenses at once, the company’s profitability normalized immediately in the first quarter of this year."
In the first quarter of this year, Kolon Global posted consolidated sales of 631.3 billion won, down 2.0% year-on-year, while operating profit increased by 129.2% to 22 billion won, returning to the black. The operating margin stood at 3.5%.
Researcher Shin noted, "While the regional housing market has not shown clear improvement, it is estimated that most development sites in Daejeon have recorded favorable pre-sales rates. Since conservative allowances for bad debt have already been reflected in anticipation of unsold inventory, there is a possibility of reversal if pre-sales increase going forward."
He added that as stable non-residential (such as plant and office building) sales continue, profitability in the housing division is normalizing, and the impact of rising material prices is limited, the cost ratio is expected to continue declining. Hyundai Motor Securities forecasts Kolon Global’s sales to reach 3.016 trillion won and operating profit to reach 120.2 billion won this year.
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The target price-to-book ratio (PBR), the basis for the target price calculation, was lowered from the previous 0.7 times to 0.44 times. This reflects a conservative industry outlook and the lower end of the valuation band seen in 2016, when order backlogs for environment and plant projects were increasing. However, Shin added, "Despite the big bath, the book value per share (BPS) did not decline as much as expected, so the target price remains unchanged at 13,000 won."
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