Construction 155: All Eyes on Overseas Projects 

The author is an analyst of NH Investment & Securities. He can be reached at minjae.lee@nhqv.com. — Ed.  

Following on from January, we maintain a Neutral rating for the construction sector. While announcing its proactive real estate market measures, the government made it clear that it does not intend to boost the economy artificially. Considering the current sluggish pre-sale market conditions, the number of unsold pre-sale apartment units is forecast to continue rising through 1H23.

Top picks for February: Samsung Engineering and Hyundai E&C

Over Jan 2~31, shares of Samsung Engineering, our sector top pick for January, returned 16.2%. Among other mid/large-sized constructors, return came to 9.0% for Hyundai E&C, 10.2% for GS E&C, 14.5% for Daewoo E&C, 12.6% for DL E&C, and 23.4% for IS Dongseo. Among construction materials companies, shares at Hanssem, LX Hausys, and Asia Cement climbed 16.1%, 24.3%, and 2.3%, respectively, while those of Ssangyong C&E stagnated. Following 4Q22 earnings releases, construction companies have presented their 2023 earnings guidance. Excluding Samsung Engineering, 2023 order targets have been set below the 2022 levels. Although higher sales are being targeted, in light of expectations for greater housing pre-sales, cost-to-sales ratios are unlikely to return to previous levels, owing to increased labor and raw materials costs. 

We maintain Samsung Engineering as a sector top pick for February, with Hyundai E&C added as a new top pick for the construction sector. Samsung Engineering presented a 2023 new order target of W12tn, a figure that we believe is easily achievable considering new orders from Samsung affiliates and other discretionary contract projects. Meanwhile, Hyundai E&C’s 2023 sales target topped consensus, and prospects for the firm’s overseas orders (led by the NEOM project in Saudi Arabia) look promising.

Weekly apartment sales price index and jeonse price index

Over Jan 24~30, the apartment sales price index fell 0.38%, with the pace of decline narrowing w-w from the previous figure of -0.41%. By region, the speed of decrease slowed in Seoul (-0.25%), the Seoul metropolitan area (-0.44%), five regional metropolitan cities (-0.40%), and eight provinces (-0.23%), but the downtrend continued nationwide. The apartment jeonse price index fell by 0.71%, with the drop slowing from the previous week (-0.75%). By region, this divided as: Seoul (-0.96%), the Seoul metropolitan area (-1.01%), five regional metropolitan cities (-0.59%), and eight provinces (-0.27%), with interest rate hike impacts continuing. 

In January, all sites subject to subscription ratio disclosure saw undersubscription (Iksan, Taeyoung Construction, 745 units for general pre-sales, 0.18:1; Yangju, Daekwang Construction, 299 units, 0.80:1; Incheon, Woobang Construction, 218 units, 0.66:1; and Seosan, Hanchang Construction, 80 units, 0.03:1). Over the previous six months, the portion of unsubscribed projects amounted to 37%, which equates to 3,700 units out of 10,000 units subject to pre-sales being unsubscribed. When considering the number of uncontracted units, the portion of unsold units should expand further.