South Korean construction firm GS E&C saw target price adjustments from brokerages in the recent month due to rising operational costs. Five out of 14 analysts lowered forecasts, citing selling, general, and administrative (SG&A) expense burdens. Despite near-term profitability concerns, analysts maintained a positive long-term outlook driven by the company's competitive position in data center construction, following GS Group's announcement of a 2.4-gigawatt AI data center campus project in Donghae scheduled for completion by 2029. The divergence in analyst views reflects tension between expanding SG&A costs — last year's consolidated expenses reached 907.2 billion won, up from 828.2 billion won the previous year — and anticipated revenue growth from large-scale infrastructure orders in the artificial intelligence and cloud computing sectors.
Brokerages Adjust GS E&C Target Prices Amid SG&A Cost Pressure
According to Yonhap Infomax Consensus Comprehensive 2 (screen number 8032) on the 19th, 5 out of 14 securities firms that issued investment opinions on GS E&C lowered their target prices in the recent month, representing approximately 35% of coverage. Among the remaining 9 firms, 4 raised target prices while 5 maintained their previous forecasts. The primary factor cited by analysts reducing targets was the expansion of SG&A expenses. On a consolidated basis, GS E&C's total SG&A costs last year reached 907.2 billion won, compared to 828.2 billion won the previous year and 650.1 billion won in 2023. Excluding salaries (315.4 billion won), the company's major expenditures last year included commission fees (156.7 billion won) and bad debt expenses (70.4 billion won). Advertising and promotion costs (44.9 billion won), though representing a relatively smaller portion, approximately doubled from the previous year's 24.1 billion won, indicating broad-based SG&A growth. Kim Jin-beom, a researcher at Sangsangin Securities, stated that "while the construction and housing divisions' gross profit margin (GPM) continues a favorable trend at around 12.2%, and new business gross profit is expected to remain solid at 54.6 billion won, the burden of SG&A expenses stemming from urban redevelopment project orders and construction rights acquisition activities will persist."
GS Group Announces 2.4GW Data Center Campus in Donghae
GS Group recently announced plans to build an AI data center (AIDC) campus with a total capacity of 2.4 gigawatts in Donghae, Gangwon Province. The project will be executed in two phases: 1.2GW to be completed by 2028 in the first phase, followed by an additional 1.2GW by 2029 in the second phase. Securities analysts project high likelihood that GS E&C will secure construction orders for this project given the company's established track record in data center development. GS E&C has completed more than 10 data center projects, including the Epoch Anyang Center and Goyang Magna Center, positioning the firm with competitive advantages in securing orders. Kim Seung-jun, a researcher at Hana Securities, noted that "the company has 5 data center projects underway from last year through this year, and through the Donghae project, we can anticipate orders for gigawatt-scale data centers. With the potential for over 10 trillion won in orders contributing to revenue within 2 to 3 years, the company-wide revenue growth rate could be very rapid."
GS E&C Stock Price Shows Recovery from April Lows
GS E&C's stock price has recently demonstrated a rebound trajectory. After breaking through the 43,000 won level on a closing basis in April, the stock declined to around the 23,000 won range before gradually recovering its price level in recent trading sessions. The stock's movement reflects market reassessment of the company's position in the expanding data center construction sector against the backdrop of near-term cost pressures.
FAQ
Why did some brokerages lower GS E&C's target price?
Five out of 14 securities firms lowered target prices in the recent month primarily due to rising selling, general, and administrative (SG&A) expenses. Last year's consolidated SG&A costs reached 907.2 billion won, up from 828.2 billion won the previous year, with increases across categories including commission fees, bad debt expenses, and advertising costs. Analysts noted that SG&A burdens from urban redevelopment project activities are expected to persist.
What is the scale of GS Group's Donghae data center project?
GS Group announced plans to construct a 2.4-gigawatt AI data center campus in Donghae, Gangwon Province. The project will proceed in two phases: 1.2 gigawatts to be completed by 2028 in phase one, followed by an additional 1.2 gigawatts by 2029 in phase two. GS E&C is expected to be the primary construction contractor given its track record of completing more than 10 data center projects.
How much revenue could GS E&C generate from data center orders?
According to Hana Securities analyst Kim Seung-jun, GS E&C could potentially secure over 10 trillion won in data center construction orders, which could be converted to revenue within 2 to 3 years. The analyst noted that the company currently has 5 data center projects underway from last year through this year, with the Donghae project representing a significant opportunity for gigawatt-scale orders that could drive rapid company-wide revenue growth.
