Increasing Construction Stocks Amid Industry Recovery
Construction Sector Benefits from Raw Material Price Stabilization and Interest Rate Cut Expectations
Cosmetics and Power Equipment, Hot in H1, See Reduced Shares
National Pension Service, the largest institutional investor in Korea, was found to have focused on adding construction stocks to its portfolio throughout August. Conversely, it reduced its holdings in cosmetics and power equipment-related stocks.
According to the Korea Exchange on the 11th, the National Pension Service held more than 5% stakes in a total of 280 stocks. Among these, 27 stocks experienced changes in shareholding ratios between August 1 and 31. The stock with the largest increase in shareholding ratio was GS Construction, which rose by 2.1 percentage points from 7.41% to 9.51%. This was followed by Daewoong Pharmaceutical (8.15%→10.03%), HDC Hyundai Development Company (9.61%→11.07%), CJ Logistics (9.33%→10.21%), and Samsung Life Insurance (6.17%→6.87%).
Breaking through consecutive adversities... Is it the 'time of construction'?
The defining feature of the August portfolio was the concentrated purchase of construction stocks. The construction industry has endured a 'harsh winter' due to a series of adversities such as soaring material costs, high interest rates, and a decline in real estate prices. However, recently, raw material prices have stabilized, housing prices have been rising mainly in the metropolitan area, and expectations of interest rate cuts have combined to show signs of recovery. The National Pension Service increased its stake not only in GS Construction and HDC Hyundai Development Company but also in DL E&C, raising it from 9.99% to 10.10%, a 0.11 percentage point increase. These three construction companies are consistently ranked in the 'Top 10' in annual construction capability evaluations.
The undisputed number one in construction capability evaluation, Samsung C&T, reduced its stake from 7.98% to 7.14%, a decrease of 0.84 percentage points. Samsung C&T's construction division, which mainly secures orders for urban redevelopment projects, plans to supply the fewest units among major construction companies this year, with 7,273 households. In contrast, HDC Hyundai Development Company and GS Construction each plan to supply well over 10,000 households. Song Yurim, a researcher at Hanwha Investment & Securities, said, "It is natural that companies with a large proportion of housing business attract attention amid a market recovery atmosphere along with interest rate declines." Jang Yoonseok, a researcher at Yuanta Securities, noted, "Among companies with a high proportion of pre-sale sites in the first half of 2023-2024, HDC Hyundai Development Company accounts for 44% and GS Construction 36%. Among these, GS Construction has the highest proportion of pre-sale volume in the metropolitan area at 28% within the same industry."
Besides construction stocks, Daewoong Pharmaceutical, which received a love call from the National Pension Service, is evaluated as having secured new growth engines with the new drug duo 'Pexuclu' and 'Enblo,' despite concerns about undervaluation of its stock price. CJ Logistics has seen operating profits increase for 11 consecutive years through this year and recently initiated a growth drive by becoming the first in the courier industry to introduce '7-day-a-week delivery' starting next year. Samsung Life Insurance, the financial affiliate of Samsung Group with the highest market capitalization, is aligning with a 'value-up' policy by setting a mid- to long-term shareholder return rate target of 50%.
Cosmetics and power equipment 'reduced'... Large-cap stocks also trimmed
On the other hand, the National Pension Service reduced its stakes in Amorepacific and LG Household & Health Care, considered the 'two giants' of cosmetics, by 1.00 percentage point and 0.15 percentage points respectively. Both companies showed an upward trend until the first half of the year, fueled by the 'K-Beauty' boom, but posted sluggish results in the Chinese cosmetics market, their main revenue source, in the second quarter. Jo Sojeong, a researcher at Kiwoom Securities, said, "While Amorepacific's business restructuring toward Western markets is positive, it needs to wait until it completely detaches from China." This implies that performance in non-China markets will determine future stock prices.
The stock with the largest reduction in August was Samhwa Electric, whose stake was cut from 11.88% to 9.96%. Another power equipment-related stock, LS ELECTRIC, also saw its stake reduced by 0.6 percentage points. The National Pension Service had increased its holdings in power equipment stocks until the second quarter, but signs of change are emerging. The power equipment sector was one of the hottest industries this year due to increased demand driven by competition among big tech companies' AI data centers. Additionally, the National Pension Service trimmed its stakes in large-cap stocks within the top 10 by market capitalization, including Hyundai Motor (7.94%→7.33%), Kia (7.21%→6.61%), and SK Hynix (7.90%→7.41%). For all three stocks, this is the first adjustment in over a year.
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