Hyundai Motor Securities downgraded its investment opinion on GS Engineering & Construction Corp. (GS E&C) from "Buy" to "Market Perform" on Friday, anticipating that the company's fourth-quarter performance would fall below market expectations.
Analyst Shin Dong-hyun projected a 14.4% year-on-year decline in GS E&C's Q4 2023 consolidated revenue to 3,358.6 billion won ($2.5 billion) and a 66.8% decrease in operating profit to 37.2 billion won ($27.9 million).
The operating profit is significantly below the market expectation of 67.8 billion won ($50.8 million). Shin attributed the performance to unresolved low-margin sites and delayed margin improvement due to ongoing safety and quality management costs.
He suggested that high-cost rates are expected to persist until at least the second quarter of 2024, adding that investors need to lower their expectations of margin improvement until then.
However, Shin noted that GS E&C achieved a favorable annual performance in 2023, exceeding early-year guidance of 19,881 units with 22,098 units sold, despite the industry-wide downturn and the aftermath of adverse events.
While Hyundai Motor Securities adjusted its investment rating due to limited upside potential amid short-term stock price fluctuations, the target price remained at 16,000 won.