[Click eStock] "GS Expected to Exceed Market Consensus in Q4 Earnings... Target Price Up"

[Asia Economy Reporter Oh Ju-yeon] NH Investment & Securities maintained its 'Hold' rating on GS, expecting the company's Q4 2020 earnings to surpass market consensus, and raised the target price from 41,000 KRW to 46,000 KRW.

According to NH Investment & Securities, GS's Q4 sales and operating profit last year are estimated at 4.2826 trillion KRW and 326.4 billion KRW respectively, representing decreases of 1% and 32% compared to the same period last year. However, these figures exceed market consensus.

Researcher Kim Dong-yang of NH Investment & Securities analyzed GS Caltex by stating, "Due to weak refining margins and a reduced average oil price fluctuation compared to the previous quarter, the possibility of reflecting inventory valuation gains is low." Accordingly, operating profit is expected to decline by 87% year-on-year to 12.6 billion KRW.

On the other hand, despite the weakness in SMP (System Marginal Price) at 56 KRW/kWh, down 34% year-on-year, private power generation affiliates are expected to show strong performance due to the operation of GS EPS Biomass Unit 2 and the robust district heating business of GS Power.

Researcher Kim projected that in Q1 this year, operating profit will reach 412.5 billion KRW, a 4260% increase year-on-year, supported by GS Power's increased stake and consequent consolidation recognition, recovery of SMP trailing oil prices improving private power generation affiliates' performance, and the possibility of reversal of inventory valuation losses at GS Caltex.

Kim said, "Although the refining segment of GS Caltex has seen significantly reduced earnings visibility due to the spread of COVID-19, from the second half of the year, expansion in the petrochemical segment, growth in private power generation affiliates, synergy from the merger of GS Retail and GS Home Shopping, establishment of a CVC (Corporate Venture Capital), and entry into new growth businesses are expected to accelerate the reduction of GS's quarterly earnings volatility."

He added, "Reflecting stock price fluctuations of listed subsidiaries, changes in GS Caltex's earnings outlook while maintaining the applied multiple (PBR 0.6x), and additional acquisition of GS Power shares (stake increasing from 50% to 100%), we are raising the target price from 41,000 KRW to 46,000 KRW."