[Click eStock] "GS Geonseol, Housing Market to Get Tougher in Second Half"

Hyundai Motor Securities Report
Target Stock Price Lowered by 20%

[Asia Economy Reporter Minji Lee] Hyundai Motor Securities maintained a buy rating on GS Construction on the 28th, while lowering the target price by 20% to 40,000 KRW. This adjustment was made due to a downward revision in valuation amid a slowdown in the real estate market.

In the second quarter, GS Construction's sales and operating profit reached 3 trillion KRW and 164.4 billion KRW, respectively, marking growth of 36.4% and 31.2% compared to the same period last year. The figures fell short of estimates due to an increase in the planned cost ratio, which led to a 100 billion KRW sales deduction in Karbala, Iraq. A notable non-operating item was a foreign exchange gain of 76.3 billion KRW. New orders amounted to 4.4 trillion KRW, with an order backlog of 50.1 trillion KRW. Housing supply in the first half of the year totaled 11,116 units.

The gross profit margin for housing construction in the second quarter was 17.7%. The architectural division reflected a full contribution from Xi C&E, and some housing sites that were not recognized in the first quarter were included in the results. However, a decline in profit margins is expected in the second half of the year, exceeding previous forecasts. Researcher Seungjun Kim of Hyundai Motor Securities stated, “In addition to rising raw material prices, increased costs for partner companies due to higher transportation and labor expenses will also have an impact,” adding, “The housing construction GPM in the second half is expected to be around 15%.”

Sales and operating profit estimates for the third quarter are projected at 2.9 trillion KRW and 217.3 billion KRW, respectively. Due to the reflection of plant-related costs in the second quarter, no overseas special items are expected in the third quarter. Researcher Kim analyzed, “However, there is a significant possibility of an increase in the planned cost ratio for housing, leaving room for downside risk in operating profit.”