GS E&C
The author is an analyst for NH Investment & Securities. He can be reached at minjae.lee@nhqv.com -- Ed.
GS E&C’s 2Q23 earnings fell far short of consensus due to expenses related to the Incheon Geomdan apartment collapse. Uncertainty will remain high until August when the assessment results for 83 other sites are released.
Uncertainty remains
We maintain a Hold rating on GS E&C and lower our TP by 6% from W16,500 to W15,500. With the Ministry of Land and Transport set to announce the results of a nationwide survey on GS E&C’s 83 sites under construction in August, related uncertainty continues to linger. We lower our TP as we cut the 12-month moving average EBITDA applied to the operating value of the construction division by 18% to reflect expenses related to the Incheon Geomdan collapse. For reference, P/E based on 12-month moving average NP comes to 5.3x.
In our 2Q23 preview report, costs related to the Incheon Geomdan collapse were reflected at W350bn, but in reality, costs of W552.4bn were incurred. Therefore, we slash our 2023 OP forecast to W30.3bn (-95% y-y). However, earnings may vary depending on the survey results announced in August. Considering the past collapse case involving HDC Hyundai Development Company (294870.KS), share price uncertainty will remain high until the results are released.
2Q23 review: Results came in weak as anticipated
GS E&C booked consolidated 2Q23 sales of W3.495tn (+15% y-y) and an operating loss of W413.9bn (TTL y-y), coming in far below consensus and our estimate due to costs related to the collapse incident. Excluding the event, the housing division's GPM is estimated at around 8%. Even excluding the incident, cost-to-sales ratio improvement is progressing slowly.