Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

GS Engineering & Construction / Equity Bottom-Up

<ul>
<li>We argue that the top 20 listed construction companies in Korea are likely to underperform KOSPI in 2024 mainly due to the excessive risks in the housing/commercial real estate sectors.</li>
<li>We expect the share prices of these 20 domestic construction companies to fall by at least 15%-20%+ on average in the next 6-12 months. </li>
<li>On 2 January 2024, Financial Supervisory Service (FSS) announced that there will be new reporting requirements for PF loans of Korean construction companies starting 2023 annual reports.</li>
</ul>


We argue that the top 20 listed construction companies in Korea are likely to underperform KOSPI in 2024 mainly due to the excessive risks in the housing/commercial real estate sectors.
We expect the share prices of these 20 domestic construction companies to fall by at least 15%-20%+ on average in the next 6-12 months. 
On 2 January 2024, Financial Supervisory Service (FSS) announced that there will be new reporting requirements for PF loans of Korean construction companies starting 2023 annual reports.


Top 20 Korean Construction Companies: Off-Balance Sheet Contingent Liabilities To Drive Lower Prices

Cross Asset Strategy

<ul>
<li>FSS provided further details as to the number of Korean companies that plan to change their dividend payout system to their shareholders in 2024.</li>
<li>There are 636 companies out of a total 2,267 listed companies in Korea (28%) that have confirmed that they will change their dividend payout system starting 2024.</li>
<li>As listed companies set different voting rights and dividend record dates from the end of the year, investors need to check the dividend record date and dividend amount before investing.</li>
</ul>


FSS provided further details as to the number of Korean companies that plan to change their dividend payout system to their shareholders in 2024.
There are 636 companies out of a total 2,267 listed companies in Korea (28%) that have confirmed that they will change their dividend payout system starting 2024.
As listed companies set different voting rights and dividend record dates from the end of the year, investors need to check the dividend record date and dividend amount before investing.


FSS Provides Further Details of Korean Companies That Plan to Change Dividend Payout System in 2024

<ul>
<li>On 22 May, it was announced that Sambu Construction was invited to the Ukraine Global Reconstruction Forum held in Warsaw and Krakow, Poland from 22 to 25 May. </li>
<li>Sambu Construction is likely to be one of the Korean construction companies to be involved in the Ukraine reconstruction projects. </li>
<li>The total cost of reconstruction of Ukraine has been estimated from about $0.4 trillion to $1.1 trillion.</li>
</ul>


On 22 May, it was announced that Sambu Construction was invited to the Ukraine Global Reconstruction Forum held in Warsaw and Krakow, Poland from 22 to 25 May. 
Sambu Construction is likely to be one of the Korean construction companies to be involved in the Ukraine reconstruction projects. 
The total cost of reconstruction of Ukraine has been estimated from about $0.4 trillion to $1.1 trillion.


Sambu Construction: Likely to Be Included in Ukraine Reconstruction Projects

Event-Driven

<ul>
<li>On 30 March, it was announced that Hyun Jeong-Eun (Chairwoman of the Hyundai Group) lost a final lawsuit against the Schindler Group.</li>
<li>The Supreme Court upheld an appeal court ruling that Chairwoman Hyun needs to pay 170 billion won (US$131 million) and delayed interest payments to Hyundai Elevator. </li>
<li>Although this major lawsuit loss for Chairwoman Hyun is a tremendous catalyst, the downturn in the construction sector and uncertainty in the reduction in Chairwoman's stake remain key negatives. </li>
</ul>


On 30 March, it was announced that Hyun Jeong-Eun (Chairwoman of the Hyundai Group) lost a final lawsuit against the Schindler Group.
The Supreme Court upheld an appeal court ruling that Chairwoman Hyun needs to pay 170 billion won (US$131 million) and delayed interest payments to Hyundai Elevator. 
Although this major lawsuit loss for Chairwoman Hyun is a tremendous catalyst, the downturn in the construction sector and uncertainty in the reduction in Chairwoman's stake remain key negatives. 


Hyundai Elevator: Chairwoman Hyun Jeong-Eun Loses A Major Lawsuit Against Schindler Group

Thematic (Sector/Industry)

<ul>
<li>There has been a sharp increase in unsold housing units in Korea. There were 68k unsold housing units in Korea at the end of 2022, up 278% YoY</li>
<li>Unsold housing units is likely to get worse in Korea in the coming months driven by higher housing units supply, stubbornly high interest rates, and increasing probability of global recession. </li>
<li>We believe there is a sound trading opportunity of shorting a basket of large construction stocks including Hyundai E&amp;C, GS E&amp;C, and Daewoo E&amp;C over the next 6-12 months.</li>
</ul>


There has been a sharp increase in unsold housing units in Korea. There were 68k unsold housing units in Korea at the end of 2022, up 278% YoY
Unsold housing units is likely to get worse in Korea in the coming months driven by higher housing units supply, stubbornly high interest rates, and increasing probability of global recession. 
We believe there is a sound trading opportunity of shorting a basket of large construction stocks including Hyundai E&amp;C, GS E&amp;C, and Daewoo E&amp;C over the next 6-12 months.


A Sharp Increase in Unsold Housing Units in Korea: A Trading Opportunity

South Korea

Hyundai Engineering & Construction Co., Ltd., a general construction company, provides civil engineering, architectural, industrial, and electrical engineering services.  The Company constructs roadways, dams, bridges, ports, industrial plants, apartment complexes, and cultural facilities.

Hyundai Engineering & Construction (000720 KS)

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Hyundai Engineering & Construction (000720 KS)

Top 20 Korean Construction Companies: Off-Balance Sheet Contingent Liabilities To Drive Lower Prices

Lotte Chemical (011170 KS)'s share price declined by 9.1% YTD. Lotte Chemical has a 44.02% stake in Lotte Construction whose PF loan balance as...

Douglas Kim

FSS Provides Further Details of Korean Companies That Plan to Change Dividend Payout System in 2024

There are 636 companies out of a total 2,267 listed companies in Korea (28%) that have confirmed that they will change their dividend payout system...

Douglas Kim

Sambu Construction: Likely to Be Included in Ukraine Reconstruction Projects

Sambu Construction is likely to be one of the Korean construction companies to be involved in the Ukraine reconstruction projects.

Douglas Kim

Hyundai Elevator: Chairwoman Hyun Jeong-Eun Loses A Major Lawsuit Against Schindler Group

On 30 March, the Supreme Court upheld an appeal court ruling that Chairwoman Hyun needs to pay 170 billion won (US$131 million) and delayed...

Douglas Kim

A Sharp Increase in Unsold Housing Units in Korea: A Trading Opportunity

We believe there is a sound trading opportunity of shorting a basket of large construction stocks including Hyundai E&C, GS E&C, and Daewoo E&C...

Douglas Kim

Price Gauge

52-week Range

Market Cap (USDm)

P/E

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