[Click eStock] "GS Geonseol, Profit Margin Improvement Not Yet"

Improvement in Housing Cost Ratio Delayed, Overseas Losses Expand
Profit Margins Expected to Improve from the Third Quarter

GS Construction is expected to post results below expectations for the first quarter of this year. Analysts say the possibility of contract increases is low, and profit margin improvement is difficult due to the expansion of losses in overseas subsidiaries.

On the 4th, Meritz Securities maintained its 'Buy' rating and target price of 23,000 KRW for GS Construction based on this background. The closing price the previous day was 16,650 KRW.

GS Construction's first-quarter results are estimated to record consolidated sales of 3.1573 trillion KRW and operating profit of 50.5 billion KRW. Sales are expected to increase by 2.8% year-on-year, while operating profit is forecast to decrease by 28.4%. In particular, operating profit is expected to fall significantly short of the market consensus of 92.2 billion KRW.

There is little chance of contract increase sites appearing as in the fourth quarter of last year, and the housing cost ratio is expected to rise by 2.7 percentage points from the previous quarter to 93%. Additionally, concerns were raised about the possibility of expanded losses at the overseas subsidiary Element Europe. In some sites, construction cost increases have already been observed.

GS Construction's stock price has already fallen about 4% since the beginning of this year. Considering that the entire construction sector rose 8.5% during the same period, this is relatively sluggish. This is because the timing of housing cost ratio improvement is later than that of competitors. From the second half of the year, profitability is expected to follow the trend of the entire industry. The decline in the proportion of high-cost sites and cost ratio improvement due to stabilization of construction costs are phenomena occurring throughout the construction industry, differing only in timing.

Moon Kyung-won, a researcher at Meritz Securities, explained, "GS Construction's high-cost sites started before 2021 will be concentratedly completed in the second quarter of this year, and profit margins will improve significantly from the third quarter. Overseas plant order momentum, such as UAE Northeast P5 and Tajiz Blue Ammonia, is also concentrated in the second half."