Yuanta Securities initiated coverage of GS Engineering & Construction (KOSPI: 006360) on 21st September with a Buy recommendation and a target price of W45,000, implying 22% upside from the 18th September closing price of W36,850.

The target was derived by applying a price-to-book ratio (PBR) of 0.73 times to a 12-month forward book value per share of W62,135. The 0.73 multiple reflects the average 12-month forward PBR recorded throughout 2021, a period when recovering pre-sales were fuelling expectations of higher construction and residential revenues. Yuanta draws a parallel with today's environment, arguing that a similar recovery in housing revenues is expected to materialise by 2027.

Near-term contraction before a rebound

Yuanta's estimates for 2026 point to revenues of W11.4254 trillion, down 8.2% year on year, and operating profit of W405.9 billion, down 7.3%. Both figures represent a step backwards from 2025, when the company posted revenues of W12.4506 trillion and operating profit of W437.8 billion. The primary culprit is a roughly W1.3 trillion decline in construction and residential revenues, from W7.7869 trillion in 2025 to W6.4566 trillion in 2026. This reflects the lagged effect of weaker pre-sales volumes from prior years, which will only flow through to recognised revenue in 2026.

Despite the top-line squeeze, the operating margin is expected to nudge up slightly, from 3.5% in 2025 to 3.6% in 2026, suggesting the company can navigate the revenue contraction without a meaningful deterioration in profitability. For the third quarter of 2026, Yuanta estimates operating profit of W116.4 billion, fractionally below the market consensus of W120 billion. However, pre-tax profit (W152.4 billion) and net profit attributable to controlling shareholders (W113.5 billion) are projected to exceed consensus by 67.4% and 63.1% respectively.

2027: the inflection point

The real investment thesis hinges on 2027. Yuanta forecasts revenues of W11.9236 trillion (+4.4%) and operating profit of W631.7 billion (+55.6%), with the operating margin rising to 5.3%. The key driver is a strong pre-sales performance already in the bag: GS E&C sold 10,950 units in the first half of 2026, achieving 76.5% of its full-year target of 14,320 units in just six months. Given the construction industry's typical 12-to-24-month lag between pre-sales and revenue recognition, those transactions are set to bolster 2027 construction and residential revenues. Gross margins in the construction and residential segment are forecast to climb in step: from 13.9% in 2025 to 14.8% in 2026, and 16.5% in 2027.

Data centres as a structural growth driver

Beyond housing, Yuanta highlights data-centre construction as a second pillar of the investment case. GS E&C is currently building approximately 200 megawatts (MW) of data-centre capacity, including facilities for GS Group's Goyang Magna project (20MW), LG Uplus in Paju (70MW), and Naver in Sejong (88MW). The Paju AI data centre alone could generate additional orders of up to 200MW. A further pipeline of projects — in Busan Jangnim (40MW), Ilsan Siksa (80MW), and two Seoul edge-computing facilities totalling around 10MW — is expected to be awarded in the second half of the year. The Busan and Ilsan projects alone are estimated to generate revenues exceeding W1 trillion.

The more transformative prospect is the GS Group's Gangwon Donghae project in north-eastern South Korea. The scheme envisages 2.4 gigawatts (GW) of data-centre capacity, with 1.2GW targeted for completion in 2028 and a further 1.2GW in 2029; construction of the first phase is expected to begin before the end of this year. GS E&C's share of the work has yet to be determined, but if the project proceeds at an estimated cost of W8 billion to W10 billion per MW, the total scheme would be worth W9.6 trillion to W12 trillion — a potential game-changer. Nuclear power construction is cited as a further upside option, with GS E&C named as a possible non-lead participant in the Korean government's flagship large-reactor programme, known as Team Korea.

Risks to the thesis

These projections deserve scrutiny. The long lag between pre-sales and revenue recognition in construction creates ample room for forecasts to go awry. If the planned second-half pre-sales for 2026 fall short, the 2027 recovery scenario could be delayed. Much of the data-centre pipeline remains at the pre-contract stage. GS E&C's allocation in the Gangwon Donghae project is unconfirmed, and its participation in the nuclear programme remains uncertain.

Valuation

GS E&C shares closed at W36,850 on 18th September, more than double their 52-week low of W18,110, and roughly 15% below their 52-week high of W43,100. The stock has delivered an absolute return of 92.1% over the past 12 months. Market capitalisation stands at W3.1537 trillion, with foreign investors holding a 19.91% stake. On a 2024 earnings basis, the PBR of 0.3 times remains close to historical trough levels — a valuation floor that, Yuanta argues, limits downside even if the recovery takes longer than expected.