GS E&C: To Enjoy Synergies with New Businesses

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The author is an analyst of NH Investment & Securities. He can be reached at minjae.lee@nhqv.com. — Ed.  

 

Any negative impacts from supply-demand issues for construction materials should be limited at GS E&C thanks to the firm’s new businesses. We maintain the company as our second-preferred pick. The constructor is undervalued, trading at a 2022F P/E of 6x.

Negative impacts from supply-demand issues for construction materials to be limited thanks to new businesses

While reiterating a Buy rating, we lower our TP for GS E&C from W59,000 to W52,000, as supply-demand issues for construction materials (eg, cement) should last through 1H22, affected by higher prices for commodities (eg, bituminous coal). Given that expectations for housing sales growth of over 10% from 2022 have already been reflected in consensus, negatives relating to construction materials supply-demand imbalance may cause the firm’s sales and valuations to fall. Accordingly, we revise down our sales and OP forecasts by 7% and 11%, respectively, in turn lowering our TP by 12%.

However, GS E&C is undervalued, trading at a 2022F P/E of 6x. Considering the likely: 1) listing of GS Inima (book value of W0.6tn); and 2) profit growth at the modular construction domain in Poland and the UK (book value of W0.3tn), we maintain the firm as our second-preferred pick for the sector.

Boasts top-tier housing brand Xi

GS E&C boasts the top-tier housing brand Xi, putting it in an advantageous position over peers when securing redevelopment and reconstruction orders in not only Seoul and its neighboring cities, but also in the five metropolitan cities and eight provinces. Even if the domestic pre-sales market weakens centering on the eight regional provinces, the impact on GS E&C should be limited, considering its solid project portfolio. That said, the firm is likely to see disruptions in housing construction in 1H22, as should be the case with other constructors, owing to supply-demand issues for construction materials.

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