[Click eStock] "GS Geonseol, Housing Sales Expected to Increase After 1Q"

[Asia Economy Reporter Lee Jung-yoon] Korea Investment & Securities maintained a buy rating and a target price of 53,000 KRW for GS Construction on the 11th, stating that the order backlog reaches 30 trillion KRW and the timing for revenue recognition from already commenced sites has arrived, leading to an increase in housing sales after the low point in the first quarter of this year.

GS Construction's sales in the first quarter of this year were estimated at 2.0873 trillion KRW, up 3.6% year-on-year, while operating profit was estimated at 155.1 billion KRW, down 12.2%. Compared to consensus estimates, sales were 5.1% below and operating profit was 18.8% below expectations. This was mainly due to weakness in the construction and housing sectors. Kang Kyung-tae, a researcher at Korea Investment & Securities, explained, "Considering disruptions in site operations during the winter season and a reduction in overtime work to prevent major accidents, we lowered the sales estimate for construction and housing by 18.4%. As the core business unit, which normally retains over 20% of sales as profit, saw a decline in sales, operating profit was also estimated to decrease accordingly."

Additionally, weakness was expected in the plant and power sectors. Sales in the plant and power sectors this year were estimated at 923.4 billion KRW, down 29% year-on-year, with a gross profit margin (GPM) estimated at 0%. Following the completion of large domestic sites and a gap in new orders, the plant order backlog decreased to 2 trillion KRW.

However, Korea Investment & Securities anticipated that GS Construction would navigate smoothly in housing and new businesses. Researcher Kang said, "The market's focus on GS Construction, based on the improved pace of redevelopment projects after the presidential election, is justified. Subsidiaries engaged in new businesses such as modular construction and Global Water Solutions are also compensating for the performance gap in the plant sector, which is another investment point."