[Alpha Biz= Reporter Kim Jisun] GS Engineering & Construction (GS건설) is expected to see a margin turnaround in the second half of next year, according to Hana Financial Investment. However, the outlook remains cautious due to a conservative market environment. The firm has maintained a "Neutral" rating for GS Construction with a target price of 19,000 KRW.

In a report dated November 1, Hana Financial stated, "Given that construction sites that began in 2021 and 2022 are scheduled for completion in 2025 and 2026, we anticipate a gradual improvement in margins starting next year." The potential for upward revisions to the investment rating and target price hinges on the extent of margin improvements, recovery in the real estate market, and reductions in interest costs.

GS Construction reported third-quarter results that aligned with market consensus, showing a 0.1% year-on-year increase in revenue to 3.1 trillion KRW and a 36.2% increase in operating profit to 818 billion KRW.

The detailed performance figures revealed a gross profit margin (GPM) of 7.3% for residential construction, 10.5% for infrastructure, and 10.5% for new businesses. Additionally, the company recorded a one-time gain of 1.277 billion KRW from the sale of shares related to housing projects, such as Dongtan. For the third quarter of 2024, approximately 4,100 housing units are expected to be sold, bringing the cumulative total to 12,600 units. The total new orders for the third quarter amounted to 4.6 trillion KRW, with 2.9 trillion KRW attributed to residential construction, resulting in a backlog of 58 trillion KRW (32.4 trillion KRW from residential construction).

Hana Financial noted, "Among the ongoing construction sites, there are 15 from 2021, 29 from 2022, 17 from 2023, and 14 from 2024. In terms of monetary balance, 40% of the ongoing sites are from 2021-2022, and 60% are from 2023-2024. With 31,000 units scheduled for occupancy in 2025, including 23,000 units in the first half of the year, we expect the pace of margin improvement to accelerate in the second half."

Despite the positive outlook, Hana Financial emphasized a cautious stance on sales, lowering GS Construction's 2024 housing sales guidance from 19,880 units to 15,500 units, indicating that significant increases in sales next year compared to this year do not appear likely.

 

 

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