SG is a leading domestic asphalt concrete maker. We expect to see: 1) significant improvement in public procurement orders following the end of regulations on SMEs; 2) market share expansion for the firm’s ecosteel asphalt concrete; and 3) benefits for the newly established Ukrainian subsidiary after the Russia-Ukraine war.
Emerging from five years of darkness into warm sunshine
Since 2020, SG has failed to record consolidated sales of over W100bn, and the last time it booked OP of W10bn was in 2019. The reason for this is that government regulations prevented SMEs from bidding on government-level asphalt paving projects for five years. In 2024, the regulation was partially lifted (allowing the firm to win 20% of public works contracts in the Seoul metropolitan area and Chungnam province), and on Mar 6, the company announced that its consolidated subsidiaries and equity-stake affiliates have won large-scale orders (W200bn). Half of these orders are expected to be recognized this year, and the remainder next year.
In addition to the positive near-term earnings outlook, it is also worth paying attention to demand for the firm’s ecosteel asphalt concrete. SG is the only domestic company to have completed development of this material, which is made by utilizing slag, a by-product of steel, and can replace first-grade aggregate. Ecosteel asphalt concrete is 1.5~2x stronger than regular asphalt concrete, and it is attractive from a resource recycling perspective (as slag is a waste product). SG’s production technology is protected by a 12-year patent and the firm is currently securing construction references in pilot projects such as the Anseong Expressway and a project in Hongdae, Seoul. Given the significant difficulties in securing first-grade aggregate in the asphalt concrete market, the visibility of market share expansion for ecosteel asphalt concrete is very high.
Full-scale turnaround possible from this year
SG has experienced a long period of underperformance, but a turnaround is expected this year. The lifting of regulations, momentum from new products, and expected benefits for the newly established Ukrainian subsidiary after the Russia-Ukraine war are all factors contributing to this expectation. We forecast sales and OP to reach respective five-year highs of W151.6 bn and W13.2bn this year.