[Edaily Reporter Park Jung-Soo ] On the 24th, Hana Securities assessed that while the stock price of DL E&C CO., LTD.(375500)plummeted following a notice of corporate tax reassessment from Saudi Arabian tax authorities, the actual impact on earnings is expected to be limited. The firm maintained its “Buy” rating and target price of 120,000 won. The closing price on the 23rd was 59,100 won.
Kim Seung-jun, an analyst at Hana Securities, stated, “It is excessive for the stock price to have fallen by more than 15% due to an event that does not affect earnings,” adding, “The current stock price level, based on a price-to-earnings ratio (PER) of 5.8 times against projected 2026 earnings, has entered an undervalued range.”
Previously, on the 22nd, DL E&C CO., LTD. announced in a regulatory filing that it had received a corporate tax assessment notice totaling approximately 8533억 won from Saudi Arabian tax authorities. The authorities assessed a base tax of 4392억 won and a surcharge of 4141억 won, treating the engineering and procurement (EP) work performed by the company’s Korean headquarters for an EPC project awarded by a Saudi client as having been carried out locally.
Hana Securities pointed out three key issues regarding the appropriateness of this tax assessment. First is whether it is appropriate to tax the design and procurement work performed at the headquarters. The firm explained that EPC contracts are typically structured to distinguish between the local construction division and the headquarters’ design and procurement division, and corporate income tax has been paid accordingly.
The company also raised the issue of the statute of limitations. Under Saudi Arabia’s Income Tax Law, the maximum period for taxation is 10 years, and the company argues that the statute of limitations has already expired for income generated between 2006 and 2015. Excluding that period, the company estimates that the additional tax liability would be reduced to approximately 16 billion won.
The company also mentioned the possibility of double taxation. Since corporate income tax on the headquarters’ operations has already been paid to the South Korean government, the company argues that this could constitute double taxation, infringing on the taxing rights of one of the two countries. DL E&C CO., LTD. plans to pursue an appeal based on Saudi tax law and the Korea-Saudi Arabia Tax Treaty; no tax payment obligation arises while the appeal is pending. Hana Securities predicted that there would be no impact on earnings for the time being, as such procedures typically take five years or more.
Analyst Kim stated, “Considering expectations for local orders following the end of the Iran conflict, the partnership with UK-based X-energy for small modular reactors (SMRs), and domestic data center projects, there is ample room for the stock price to rise.” He added, “However, given the high level of macroeconomic uncertainty, I recommend actively buying the stock only after the end of the Iran-U.S. conflict is confirmed.”