Target Price Raised by 33% from Previous
Investment Opinion Upgraded from 'Neutral' to 'Buy'
Yuanta Securities on the 18th raised the target price for GS Construction from the previous 16,500 KRW to 22,000 KRW, expecting the company to exceed new orders this year, and upgraded its investment opinion from 'Hold' to 'Buy.'
Jang Yoon-seok, a researcher at Yuanta Securities, stated, "We raised the target price by 33% compared to the previous estimate due to adjustments in earnings forecasts and the appropriate price-to-book ratio (PBR)." He explained, "GS Construction's stock price surged 20% in the past week due to improved investment sentiment in the construction sector, driven by the possibility of a real estate market recovery following interest rate cuts and expectations for overseas orders. However, the valuation still stands at a 12-month forward price-to-earnings ratio (PER) of 5.8 times and a PBR of 0.33 times, indicating room for further growth."
GS Construction's second-quarter performance this year is expected to meet market expectations. Researcher Jang said, "GS Construction's second-quarter operating profit is expected to turn positive at 84.4 billion KRW, aligning with the consensus (average securities firm forecast). Although the construction and housing margin improvements due to settlement gains and contract increases seen in the previous quarter are presumed not to have recurred, it is also assumed that cost issues such as the allowance for doubtful accounts set for domestic infrastructure sites in the first quarter did not arise."
He emphasized the need to focus on earnings growth potential as new orders are expected to exceed targets. Researcher Jang analyzed, "With an anticipated increase in new orders, which can gauge the medium- to long-term direction of sales and profits, the visibility of GS Construction's earnings improvement has increased. The plant division secured the Padihilli Project PKG2 worth approximately 1.6 trillion KRW in the first quarter, already achieving the guidance of 1.6 trillion KRW. Considering the order pipeline for the second half, including the Yeosu Northeast Asia LNG Terminal (600 billion KRW) and LG Chem HVO (Hydro-treated Vegetable Oil) production plant (600 billion KRW), exceeding the annual plan is highly likely." Furthermore, new businesses are expected to recognize orders worth about 2.6 trillion KRW in the third quarter, including 900 billion KRW for water and sewage facilities in S?o Paulo, Brazil, and 1.7 trillion KRW for the third phase of the Ghubrah project in Oman. With expectations for a new project worth 800 billion KRW in Brazil by year-end, the annual plan of 2.6 trillion KRW is projected to be exceeded. Researcher Jang added, "The plant division, which was a loss-making business unit from 2020 to 2023, is expected to improve profitability through sales expansion, and the relatively high-margin new business will also contribute to profit growth."
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