Profit Growth, Data Centers, and Nuclear Power: "GS Engineering & Construction Is the Second-Preferred Stock in Construction" [Click eStock]
KB Securities Raises Target Price
from 43,000 Won to 48,000 Won
On September 22, KB Securities maintained a 'Buy' investment rating on GS Engineering & Construction and raised its target price by 11.6% from 43,000 won to 48,000 won. The analysis pointed to three key drivers: a significant increase in profits expected next year, the Artificial Intelligence Data Center (AIDC) business, and opportunities to enter large-scale overseas nuclear power plant projects. The potential upside compared to the September 18 closing price (36,850 won) is 30.3%.
KB Securities researcher Jang Moonjoon stated, "If profit growth and the AIDC business provide a floor for the share price, what will raise the ceiling is the potential for the company to enter large-scale overseas nuclear power plant projects." He also selected GS Engineering & Construction as his second-most preferred stock in the sector.
GS Engineering & Construction, which earns more than 57.2% of its revenue from architectural and residential construction, is expected to underperform its competitors this year. Although the construction industry as a whole is seeing a distinct recovery in profits as the cost ratio of residential construction (the proportion of construction cost to revenue) stabilizes, GS Engineering & Construction's operating profit is expected to decrease to 396 billion won this year, down from 438 billion won last year, due to various cost-related issues. Accordingly, KB Securities revised down its operating profit forecast for this year by 11.6%.
Paradoxically, KB Securities believes that this year's underperformance will make next year's rebound stand out even more. KB Securities forecasts next year's operating profit for GS Engineering & Construction to reach 624.3 billion won, more than 57% higher than this year, and net profit attributable to controlling shareholders to jump from 138 billion won to 346 billion won, an increase of about 2.5 times. Researcher Jang analyzed, "Ironically, as the year-end approaches, the likelihood of profit growth exceeding the sector average next year will come into greater focus."
AIDC was cited as a mid- to long-term growth driver. Since the expansion of the domestic housing business remains limited, data centers are expected to become a key factor in driving both revenue and profit. Researcher Jang emphasized, "While most major domestic construction companies are highlighting data centers as a future growth engine, GS Engineering & Construction has a clear competitive edge by being able to secure tangible business opportunities in the short term, such as the Donghae AIDC project."
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The first gateway for overseas nuclear power plant expansion is Vietnam. Korea Electric Power Corporation, along with Korea Hydro & Nuclear Power and others, is working to win the Ninh Thuan 2 nuclear power plant project in Vietnam, with the main contractor for the 'Team Korea' consortium expected to be selected between late this year and early next year. GS Engineering & Construction is bidding as a participating contractor (not the lead contractor) in hopes of making its first overseas entry into the nuclear power plant sector.
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