20171214-三星证券-Pining_for_Goldilocks_in_2018_49页_1mb

报告摘要

Sector Update Summary: Construction (OVERWEIGHT)

Core Content

This document provides an analysis of the Korean construction sector, focusing on its valuation, regulatory environment, and outlook for 2018. It highlights the sector's potential for positive performance and identifies key companies with strong upside potential.

Key Viewpoints

The KRX construction index is currently trading at 0.7x forward P/B and 7x P/E, representing 38% and 24% discounts to the Kospi's 1.1x P/B and 9.2x P/E, the lowest levels since 2004.
Despite these valuations, the sector is not facing significant balance-sheet or systemic risks and is now more focused on regulatory hurdles.
The document upgrades the sector rating to OVERWEIGHT, anticipating positive performance in 2018 due to improving fundamentals and potential asset price growth.

Top Picks for 2018

Hyundai Development Co (012630 KS, KRW39,950): Target price KRW51,000 with 27.7% upside potential. The company is expected to unlock hidden value through a transition to a holding company structure.
GS E&C (006360 KS, KRW27,300): Target price KRW36,000 with 31.9% upside potential. The firm is expected to benefit from domestic reconstruction/redevelopment momentum and turn profitable overseas.
Hyundai E&C (000720 KS, KRW34,700): Target price KRW50,000 with 44.1% upside potential. It is anticipated to enjoy balanced growth both at home and abroad.

Valuation Comparison

Company	2016	2017E	2018E	Target Price (KRW)	Upside Potential (%)
Hyundai Development	35,500	40,685	46,661	51,000	28.3
GS E&C	27,300	40,685	50,166	36,000	31.9
Hyundai E&C	34,700	40,685	46,661	50,000	40.8
Daelim Industrial	82,600	134,797	147,172	111,000	34.4
Samsung C&T	32,350	142,656	148,089	38,000	8.2
KCC	392,500	619,893	633,251	520,000	32.5

Key Issues for 2018

Tighter Lending Regulations: The Moon Jae-in administration has implemented strict measures, including lowering LTV and DTI ratios to 40% in overheated areas.
Interest Rate Hikes: Expected rate hikes in 2018 may impact affordability and demand.
Move-In Volume Growth: Increased move-in volume is anticipated to affect jeonse supply and housing price trends.

Housing Market Outlook

The Moon administration has introduced a series of real estate measures to curb speculative demand and stabilize the rental market.
These measures include:
- Designating overheated speculation zones and speculation districts.
- Lowering LTV and DTI ratios to 40%.
- Introducing higher capital gains tax rates for multiple dwelling owners.
- Implementing presale price ceiling systems and property transaction reporting.
The first part of the housing welfare roadmap aims to supply 1 million housing units over five years, including public rent, govt-subsidized private rent, and public presale housing.
The second part focuses on incentives for multiple dwelling owners to register as rental operators, including tax breaks and health insurance premium cuts.

Funding Conditions and Liquidity

Funding conditions have improved for constructors due to reduced accrued receivables and a vibrant domestic housing market.
Corporate bond issuances by A-rated companies, such as SK E&C and Lotte E&C, have been well received, indicating increased investor interest.
Retail investors are playing a key role in non-investment grade bond purchases, showing higher risk appetite and priority on yields.
Securities brokers are emerging as alternative funding sources, offering credit enhancement and support to companies with contingent liabilities.

Outlook for 2018

The construction sector is expected to see limited downside due to no significant balance-sheet or systemic risks.
Oil and asset price hikes may provide positive support to the sector, especially for overseas EPC projects.
A Goldilocks housing market could normalize valuations and drive stock performance.
Regulatory uncertainty remains, with the potential for additional measures if domestic housing prices rise sharply.

Conclusion

The construction sector is undervalued and faces limited downside despite regulatory pressures. With improving liquidity, domestic housing market strength, and potential for asset price growth, the sector is well-positioned for positive performance in 2018. Key companies like Hyundai Development Co, GS E&C, and Hyundai E&C are highlighted as top picks due to their growth potential and valuation upside.