[Click eStock] "GS Geonseol, Visible Results of New Business Are Important"

Strong Performance in Housing Sales Segment... Plant Segment Sales Slowdown Inevitable
Yuanta Securities "GS Construction Target Price Lowered from 54,000 KRW to 51,000 KRW"

[Asia Economy Reporter Gong Byung-sun] GS Engineering & Construction continued its profit growth trend due to strong performance in the housing sales sector. New businesses are expected to determine GS Engineering & Construction's future performance.

On the 25th, Yuanta Securities forecast that GS Engineering & Construction's sales for the second quarter of this year will reach KRW 2.5659 trillion, a 0.7% increase compared to the same period last year, and operating profit will increase by 44.4% to KRW 238.4 billion. For the entire year, sales are expected to decrease by 2.2% to KRW 9.9 trillion, while operating profit is expected to increase by 15.5% to KRW 867 billion. This profit growth trend is expected to continue beyond this year.

The profit growth trend in the housing sales sector influenced the performance. Yuanta Securities set GS Engineering & Construction's housing sales target (guidance) for this year at 31,643 units. Even without reflecting the fourth quarter volume, this surpasses last year's sales volume of 27,000 units. In the first half of this year, housing sales performance recorded approximately 11,000 units.

However, Yuanta Securities forecast an inevitable slowdown in sales in the plant sector. Kim Ki-ryong, a researcher at Yuanta Securities, explained, "This is due to the completion effects of projects from affiliates such as LG Chem and GS Caltex," adding, "Nevertheless, the overseas risk mitigation and profit improvement effects remain valid due to the bad debt write-off of unbilled construction work at sites in Saudi Arabia and Doha, Qatar, in the fourth quarter of last year."

Yuanta Securities predicted that the changes centered on new businesses promoted by GS Engineering & Construction will become important in the future. GS Engineering & Construction is pursuing various new businesses in the construction and environmental sectors. In construction, it is focusing on modules and precast concrete fully manufactured in factories, while in the environmental sector, it is interested in secondary battery recycling and smart aquaculture.

The direction of overseas new businesses is also becoming important. GS Engineering & Construction's overseas order strategy is shifting from the existing Middle East plant focus to targeting infrastructure projects in Australia. GS Engineering & Construction aims to secure orders within this year for projects including the Australian NEL project, for which it was selected as the preferred bidder, the Inland Rail project, and the Turkey Seyhan project. Among GS Engineering & Construction's subsidiary Inima's Oman plant projects announced last year, KRW 1.4 trillion is expected to be recognized along with financial closure within this year.

Accordingly, Yuanta Securities maintained a "Buy" investment opinion on GS Engineering & Construction. The target stock price was lowered from KRW 54,000 to KRW 51,000. The closing price on the previous day was KRW 41,500. Researcher Kim said, "Expectations for orders due to rising oil prices and improved Middle East ordering environment have decreased compared to the past," and forecasted, "Visible results in various new businesses such as Australian infrastructure projects will be important going forward."