[Click e-Stock] "Strong Results and New Business Potential" GS Target Price Raised

DB Financial Investment raised its target price for GS from 1.2 million won to 1.5 million won. This upward adjustment reflects both the company’s second-quarter operating profit, which far exceeded market expectations, and strong anticipation for future new business growth.

On August 20, DB Financial Investment stated in its GS corporate analysis report titled "Everything Will Be Fine" that, “As GS has made the most attractive growth investment by leveraging its portfolio, expectations for a re-rating (stock price re-evaluation) will rise further.” Along with the increase in target price, the investment opinion remains ‘Buy.’ The previous day’s closing price for GS was 1,197,000 won.

Previously released second-quarter operating profit for GS was 1.7 trillion won, far exceeding the market consensus of 1.1 trillion won. In particular, GS Caltex posted record-breaking results on the back of improved refining margins, driving the overall performance. GS Caltex’s second-quarter operating profit reached 2.55 trillion won, and net profit came to 1.86 trillion won, both all-time highs. As refining margins improved, profitability in the refining division rose sharply.

Strong results are expected for GS Caltex in the third quarter as well. Han Seungjae, a research analyst at DB Financial Investment, stated, “Assuming the average price of Dubai crude oil in the third quarter is 79 dollars per barrel, GS Caltex’s estimated inventory valuation loss will be about 1 trillion won.” However, Han added, “With continued strength in refining margins, refining operating profit is expected to reach 950 billion won, supporting robust quarterly results.” The analyst further noted, “The strong performance in lubricants also continues,” forecasting total third-quarter operating profit for GS Caltex to reach 1.38 trillion won.

He also pointed out that for the shortage of refining supply to be resolved, several factors are required: normalization of the Strait of Hormuz, comprehensive crude oil export approvals from China, and expanded domestic consumption. However, these conditions have yet to materialize. Entering the peak season, together with a rebound in System Marginal Price (SMP), DB Financial Investment also projected that the combined operating profit of the three power generation subsidiaries will rebound as well.

DB Financial Investment assessed that it is now time for GS to use the significant cash flow it secured during the boom period to invest in new businesses. Since the mixed feed cracker (MFC) facility, which received an investment of 2.7 trillion won, began operations in 2022, GS’s capital expenditure (CAPEX) has declined, while this year, GS Caltex’s earnings strength is projected to hit an all-time high.

Particular attention was given to GS’s initiatives for artificial intelligence data center (AIDC) projects based on its power generation businesses. The analyst said, “It is now time to deploy massive earnings into new ventures,” emphasizing that, “as progress is made in securing permits and engaging tenant negotiations, expectations for AIDC growth will increase.”

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