[Click e-Stock] GS Engineering & Construction Delivers Solid Results Despite Potential Losses of Up to 100 Billion Won

Large Losses from UK Modular Business Liquidation
Yet Profitability Remains Strong... Housing Cost Ratio Recovers

Despite the potential for significant losses from the liquidation process of its UK steel modular subsidiary in its new business division, GS Engineering & Construction is expected to achieve solid operating profit. Analysts believe that the company will demonstrate fundamental profit-generating strength by performing well in its architecture and housing divisions.

On the 11th, IBK Investment & Securities maintained its 'Buy' investment rating and target price of 26,000 won for GS Engineering & Construction, citing these factors. The previous day's closing price was 20,850 won.

IBK Investment & Securities projected GS Engineering & Construction's second-quarter results to include sales of 3.366 trillion won and operating profit of 132 billion won. Compared to the same period last year, sales are expected to grow by 2.1%, and operating profit by 41.7%. In particular, operating profit is forecast to significantly exceed the market consensus of 109.7 billion won.

Notably, strong results are anticipated even though both the new business and architecture/housing divisions are experiencing increased volatility. In the new business division, the UK steel modular subsidiary Elements Europe (in which GS Engineering & Construction holds a 75% stake) has entered liquidation proceedings, and additional losses related to remaining construction work are expected to be reflected. In the first quarter alone, approximately 47 billion won was already recorded as expenses. This quarter, there is a possibility that up to 100 billion won in additional losses could be reflected. Nevertheless, operating profit is still projected to remain solid.

This outlook is attributed to the robust performance of the architecture and housing divisions. IBK Investment & Securities identified two positive factors working simultaneously: increases in contract amounts and profits from completion settlements. At two large-scale sites, contract amounts increased by approximately 130 billion won, and profits from settlements are expected to be recognized at some completed sites.

Although both factors are one-off events, they are expected to contribute to improved cost ratios and offset modular losses. In addition, the cost ratio in the housing division has been recovering since the first quarter, ensuring basic profitability.

Jo Junghyun, a researcher at IBK Investment & Securities, explained, "Second-quarter operating profit is unlikely to reach the initially expected 150 billion won, but solid results despite large-scale loss provisions prove the company's fundamental profit-generating strength."