Daewoo E&C Shares Surge 880% This Year as Brokers Cut Ratings on Valuation

Brokerages are tapping the brakes on South Korean builders that have surged on expectations for nuclear-power orders, arguing valuations have become stretched after a rapid run-up.

As of April 29, Shinhan Securities and Mirae Asset Securities had each downgraded Daewoo Engineering & Construction Co. to neutral, from trading buy and buy, respectively, according to the financial investment industry. Both firms said the builder's first-quarter earnings surprise and the potential for additional overseas orders for nuclear plants and liquefied natural gas projects remain intact. But they also said those expectations are already reflected in the share price. Daewoo E&C stock has jumped more than 880% this year.

"The stock has risen sharply since the start of the year, lifting its estimated 2026 price-to-book ratio to four times," Shinhan Securities analyst Kim Sun-mi wrote. "Now is the time for a breather." Mirae Asset Securities analyst Kim Ki-ryong said the current share price stands above the upper end of valuation multiples seen during the 2007 Middle East cycle and trades at a premium to domestic nuclear-power stocks.

The mood is little different across the broader construction sector. Eugene Investment & Securities said a series of favorable factors -- including nuclear power, Middle East reconstruction and investment in the US -- had rapidly driven up shares of Hyundai Engineering & Construction Co. and Daewoo E&C. In the firm's view, expectations were priced in even before order wins became visible.

Despite valuation concerns, the industry's medium- to long-term growth outlook remains broadly positive. South Korean builders are expected to further strengthen their competitiveness in nuclear power. Market interest is also growing in the possibility of Korean-designed reactors entering the US market, with the business potentially expanding beyond plant construction into package exports that include fuel supply and operations.

"The nuclear-power momentum for South Korean builders is not a one-off event but a trend based on structural competitiveness," Eugene Investment & Securities analyst Ryu Tae-hwan said. "The gap between order results and share prices has widened, but investors need to take a medium- to long-term view."

On April 29, Daewoo E&C closed down 0.67% at 36,900 won, while Hyundai Engineering & Construction ended up 0.90% at 168,600 won.

Yang Ji-yoon, Hankyung.com reporter yang@hankyung.com