[Click eStock] "GS Geonseol, Target Price 15,000 Won... Investment Opinion 'Neutral'"

Ebest Investment & Securities maintained a target price of 15,000 KRW and a neutral investment rating on GS Construction on the 29th, stating that margins are improving due to completion settlement profits from housing move-ins and contract increases.

GS Construction's first-quarter sales amounted to 3.0709 trillion KRW, a 12.6% decrease compared to the same period last year, which was relatively in line with consensus. Meanwhile, operating profit was 70.6 billion KRW, down 55.5% year-on-year but 20.9% above consensus. Since last year, after conservative adjustments to housing site costs, the order backlog margin was expected to gradually normalize to around 7-8%. However, one-off effects such as completion settlement profits from housing move-ins and contract increases at some cooperative sites led the building housing division to record a margin of 8.8%, generating profits higher than market expectations.

The expected housing move-in volume for 2024 is about 20,000 units, a decrease of approximately 34% compared to the previous year. However, considering the possibility of additional completion settlement profits and contract increases, the housing margin outlook was raised by 1-2 percentage points quarterly. Nonetheless, some domestic infrastructure sites reflected bad debt write-offs related to construction receivables in selling and administrative expenses, and an increase in personnel led to a rise in the absolute level of selling and administrative expenses, so there is no significant change in the annual profit estimates.

Since GS Construction is a stock highly linked to housing, valuation de-rating due to the prolonged high-interest-rate environment and expanded market PF restructuring risks is inevitable. However, the important point is that it is difficult to find factors that could further deteriorate fundamentals at this point. The unstarted PF of 1.8 trillion KRW is expected to be steadily maintained throughout the year without significant increase. Researcher Kim Seryeon of Ebest Investment & Securities stated, "Depending on market conditions, conversion of the main PF of around 500 billion KRW is also expected, which could reduce the overall risk level," and added, "Net interest costs are maintained at around 38 billion KRW per quarter without significant changes in borrowings, making it difficult to find additional factors that could impair ROE at this point." Reviewing the sale of Inima shares within the year and other asset securitizations to improve the financial structure are also possible options. Although it is difficult to find short-term stock momentum, confirming the sustained profitability of the housing business is ultimately seen as the way for investment sentiment toward GS Construction to recover.