[Click e-Stock] IS Dongseo Expected to See Earnings Driven by Gyeongsan District

On September 17, Shinhan Investment Corp. initiated coverage of IS Dongseo, assigning a 'Buy' investment rating and a new target price of 27,000 won. The company noted that while the stock price plunged due to weakened momentum in the Gyeongsan District pre-sales and weak second-quarter results, it expects the share price to recover once substantial results from large-scale self-developments are confirmed.

Sunmi Kim, research fellow at Shinhan Investment Corp., stated, "Second-quarter earnings were weak due to the contract cancellations stemming from unpaid balances in Blocks 8, 9, and 10 of the Deogeun District." She analyzed, "While the likelihood of additional cancellations is limited, resale activity is projected to pick up in earnest after 2030, which means that the pace of earnings recovery in the second half will be somewhat slow."

Kim added, "Performance is expected to recover in line with revenue recognition from the 'Penta Hills W' project, which has a total sales volume of 3.5 trillion won." She forecasted, "Even with a conservative estimate assuming a 50% revenue recognition rate, operating profit will improve quarter by quarter starting from the third quarter of this year." Shinhan Investment Corp. estimates that IS Dongseo's operating profit will grow steeply to 165.3 billion won in 2027 and 302.1 billion won in 2028.

She further commented, "Contrary to market concerns, as the Penta Hills W project proceeds, operating cash flow will also gradually improve." She evaluated, "Even considering deferred pre-sales at the second complex, weaker-than-expected contract rates at the first complex, and a concentration of interim payment schedules in the latter stages, collection of pre-sale proceeds is expected to exceed input costs." In addition, she noted, "A key advantage is the project's strong profitability based on low land costs, which provides ample flexibility during execution."

Kim explained, "At present, the stock is trading at a projected 2027 price-earnings ratio (PER) of 6.5 times and a price-to-book ratio (PBR) of 0.3 times." She added, "While the high earnings volatility resulting from the focus on self-development projects is acting as a discount factor for the share price, as Penta Hills W revenue ramps up in earnest from 2027, this will become a premium factor for the stock."

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