"DL E&C Faces 850 Billion Won Saudi Tax Bomb... Seen as Buying Opportunity" [Click e-Stock]

Stock Drops 20% on Corporate Tax Notice
"No Cash Outflow During Appeals Process... Buying Opportunity"

Regarding the large-scale corporate tax assessment notice sent to DL E&C by the Saudi Arabian tax authorities, securities analysts believe that the actual financial impact will be very limited.

According to Hanwha Investment & Securities on June 24, researcher Song Yurim of Hanwha Investment & Securities stated the previous day, "There are major legal flaws in the recent corporate tax assessment notice. DL E&C plans to follow the appeals process." Song added, "There will be virtually no short-term financial impact, and even in the long run, the effect on fundamentals will be limited."

Hanwha Investment & Securities also maintained its 'Buy' investment opinion and target price of 110,000 won for DL E&C. On the previous trading day, DL E&C closed at 59,100 won, down 20.14% from the previous session.

"Clear Legal Flaws in the Tax Assessment Notice"

Recently, DL E&C disclosed that it had received a corporate tax assessment notice from the Saudi tax authorities amounting to approximately 850 billion won. The Saudi authorities assessed the tax on the grounds that DL E&C conducted design and procurement work for 2006–2019 at a permanent establishment in Saudi Arabia, rather than at its Korean headquarters.

Researcher Song pointed out that there are clear flaws in the Saudi authorities’ tax ruling. Song explained, "This income was lawfully reported and corporate tax was paid in Korea. Taxing the same income in both countries constitutes double taxation and violates the tax treaty between the countries, infringing on their respective taxing rights."

The expiration of the assessment period was also cited as a basis for unfairness. Under Saudi income tax law, the statutory period for corporate tax assessment is a maximum of 10 years. Song noted, "If you exclude the tax amounts for the fiscal years 2006–2015, for which the assessment period has passed, the assessed amount plunges to around 16 billion won. Moreover, the authorities have not provided specific standards for determining the tax base or amount, which also goes against the principle of reasoned taxation."

Sharp Stock Drop Seen as Buying Opportunity

The analyst also believes that this corporate tax assessment will have minimal impact on DL E&C’s liquidity, business operations, or other fundamentals. This is because the company plans to utilize all available legal procedures, including local appeals and the Mutual Agreement Procedure (MAP) between countries.

Song stated, "While the appeals process is ongoing, there is no obligation to pay the assessed tax, so there will be no short-term cash outflow. The process is expected to take at least five years, and even if a partial tax is ultimately recognized, the actual financial burden would not be significant."

He added, "Currently, the company’s stock is trading at a 12-month forward price-to-book ratio (PBR) of 0.42x and price-to-earnings ratio (PER) of 5.9x, based on market consensus. Given the legal flaws and the ongoing appeals process, the impact on the company will be limited, and the sharp drop in share price yesterday is excessive. This presents a buying opportunity."

This content was produced with the assistance of AI translation services.