[Click e-Stock] "GS, Discount Rate Reduced on Policy Expectations... Target Price Raised"

Target Price Raised from 56,000 Won to 61,000 Won

On June 10, KB Securities announced that it expects GS to benefit from the new government's policies and raised its target price from 56,000 won to 61,000 won. The investment opinion remains 'Buy'.

Jeon Wooje, an analyst at KB Securities, stated, "Although we lowered our 2025 and 2026 earnings per share estimates by 11% and 14%, respectively, to reflect the decline in drilling, refining, and power generation performance due to falling oil prices, we raised the target price because we expect the new government's renewed push for amendments to the Commercial Act to strengthen protection for general shareholders. As a result, we reduced the holding company discount rate applied to the net asset value in our target price calculation from 50% to 40%." He added, "GS is expected to benefit from the establishment of a minimum inheritance tax threshold for stocks with a price-to-book ratio (PBR) below 0.8 times, as well as from the separate taxation of dividend income."

GS's largest shareholders and related parties, totaling 53 individuals, currently hold between 0% and 4.75% of the shares each, amounting to a total of 51.5%. The company's dividend policy is to return at least 40% of the average net profit over the past three years (excluding one-off, non-recurring gains). Jeon noted, "As a result, GS may be sensitive to changes in systems related to inheritance and dividend tax rates."

KB Securities estimates GS's operating profit for the second quarter of this year at 615.4 billion won, a 23% decrease compared to the same period last year. Jeon explained, "The sharp drop in oil prices from $76.5 per barrel in the first quarter to $64.4 in June led to a significant decline in earnings in the drilling (energy) segment." He continued, "The refining segment also recorded inventory valuation losses, resulting in a consolidated operating profit decrease of 94.5 billion won. Despite the seasonal off-peak period, the power generation segment is expected to perform well due to a rebound in gas prices."

The risk of further profit decline is not expected to be significant. Jeon projected, "This year's annual operating profit will decrease by 14% year-on-year to 2.6 trillion won, but net profit attributable to controlling interests is expected to increase by 31% to 740 billion won." He explained, "Most of the operating profit decline occurs in the overseas drilling segment, where the corporate tax rate under contract terms reaches 80-90%, so the decrease in net profit is not substantial." He added, "The risk of further profit decline is limited. After the sharp drop in April, oil prices have stabilized around $60 per barrel, and refining capacity expansion has shifted to net closures since the first quarter. The recovery in the refining segment is positive."