[Click eStock] "GS Geonseol, Earnings Shock Due to One-Time Loss... Target Price Down 5.7%"

Daishin Securities Report

[Asia Economy Reporter Minji Lee] Daishin Securities on the 28th maintained a buy rating on GS Construction but lowered the target price by 5.7% from the previous level to 49,000 KRW. This reflects the downward revision of the annual performance due to a one-time loss in overseas projects.

Looking at the third-quarter results, sales reached 2.1717 trillion KRW and operating profit was 152.3 billion KRW, down 6% and 27% respectively compared to the same period last year. The results fell short of market expectations by 10% and 34% respectively, marking an earnings shock.

Researcher Dongheon Lee of Daishin Securities explained, “A one-time loss of 143 billion KRW was reflected in sales and operating profit due to delay penalties related to the Bahrain LNG terminal project, which was ordered in 2015 in the plant and infrastructure sector. It is estimated that there will be no additional loss projects in the overseas order backlog going forward.”

The construction and housing sectors posted solid results. Sales were 1.604 trillion KRW and gross profit was 325.6 billion KRW, growing 18% and 1.7% respectively compared to the same period last year.

Daishin Securities revised down its annual earnings estimates considering the third-quarter earnings shock. Operating profit was adjusted from the original 755 billion KRW to 658 billion KRW, and next year’s operating profit forecast was also lowered from 913 billion KRW to 847 billion KRW.

The cumulative domestic orders in the third quarter reached 6.7 trillion KRW, achieving 78% of the annual target of 8.6 trillion KRW. Overseas orders were 700 billion KRW, only 15% of the target of 5.1 trillion KRW.

Researcher Donghyun Lee said, “The growth potential of affiliates such as Inima and Enerma is a positive factor, and the domestic housing sector is expected to continue its strong performance. Considering uncertainties in next year’s sales market due to interest rate hikes and loan regulations, the results are analyzed as a disappointing shock at a critical stage.”