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Construction stocks soared all at once. This is because there is a growing expectation that private-led development will be promoted with the’LH (Korea Land and Housing Corporation) Incident’ and the resignation of Minister Byeon Chang-heum of the Ministry of Land, Infrastructure and Transport. This is because the profitability of large construction companies will increase if they are developed by the private sector. However, the prospect that there is still no other choice but to go to public development is also difficult. The industry is predicting that the strength of construction stocks will continue no matter what form of development takes place. This is because both the ruling and opposition parties are promoting supply expansion. The keyword for supply expansion supports the’building industry growth story’ that will lead to the Seoul Mayor’s election scheduled for next month and the presidential election next year.
Construction stocks reversing the bearish market
15th Daewoo E&C(6,300 +5.70%)Ended at 6300 won, up 5.7%. GS E&C(40,350 +3.33%)(3.33%), Hyundai E&C(42,750 +2.27%)(2.27%), HDC Hyundai Industrial Development(28,500 +4.01%)(4.01%) also surged all at once. Small and medium-sized construction stocks also rose. Kumho Industry(9,420 +6.44%)Ended the deal at 9,420 won, up 6.44%. Dongbu Construction(12,750 +3.66%)(3.66%), Gyeryong Construction(30,000 +3.27%)(3.27%), Taeyoung Construction(12,000 +2.56%)(2.56%) The stock price also jumped. On this day, the KOSPI index fell 0.28% to 3045.71, closing the market.
The rise of construction stocks was led by the institution. The agency net purchased Daewoo E&C worth 17.7 billion won. GS E&C (25.4 billion won), Hyundai E&C (14.9 billion won), and HDC Hyundai Industrial Development (3.5 billion won) were also purchased.
The fact that Minister Byeon announced his intention to resign triggered an uptrend. This is due to the expectation that public-led development will lose its power. The surge in the approval ratings of the opposition party candidates for the mayor of Seoul, who preceded the reconstruction, also had an impact.
Private-led development is good?
Experts analyzed that there are pros and cons between public and private initiatives. It means that public-led development does not have to be viewed as a bad news for the builders.
However, it is analyzed that the private initiative is advantageous for large construction companies. Park Yong-hee, a researcher at IBK Investment & Securities, explained, “The decline in large-scale construction stocks this year is due to concerns that the role of large-scale construction companies may be less than expected due to public initiatives.”
The Seoul Mayor’s election, scheduled for the 7th of next month, is expected to be a short-term watershed for large-cap stocks. In particular, the date of registration for unification candidates, the 18-19th is important. This is because the type of development is determined depending on which candidate is elected. Candidate Young-sun Park is pledged to provide 500,000 households in public housing within five years.
On the other hand, Candidate Se-hoon Oh pledged to abolish regulations on the 35th floor of the Han River and develop a balanced development between Gangnam and Gangbuk. Gangnam development is advantageous for large construction companies.
Positive for the entire construction industry
In the long run, experts analyze that the outlook for the entire construction stocks is bright. Both the ruling and opposition parties are pushing for supply expansion. According to Eugene Investment & Securities, 430,000 new homes are expected to be supplied this year. This is an increase of nearly 20% compared to last year’s 360,000 households. Ahead of the presidential election, each party is proposing to expand supply, which is expected to affect the entire construction stocks.
A representative of an asset management company said, “The stock market has a long- and short-term theme, but the construction owner has a story leading up to the Seoul Mayor’s election and next year’s presidential election.” This is because the biggest concern of the people is the supply of housing and the price of real estate. Experts predict that there is no choice but to increase supply in order to capture real estate prices. Industry analysts say that even if the 3rd new town development is delayed in the aftermath of the LH crisis, LH has no choice but to expand the development to the existing land.
If reconstruction and redevelopment regulations are eased, Hyundai E&C and GS E&C are analyzed to be promising. Looking at the development of the station area, it is worth paying attention to HDC Hyundai Industrial Development. HDC Hyundai Industrial Development is promoting the Gwangwoondae station area development project and the Yongsan station underground development project.
Eugene Investment & Securities picked GS E&C as its top pick. In addition, Hyundai E&C and HDC Hyundai Industrial Development were also promising. Hana Financial Investment picked GS E&C and Daewoo E&C as top picks.
The low valuation of builders is also positive. Stock market builders’ 12-month-advanced share price/earnings ratio (PER) is 6.4x and net asset ratio (PBR) is 0.68x. Yeolmae Kim, a researcher at Eugene Investment & Securities, said, “The construction industry is highly likely to improve performance over the next two years due to the favorable housing business.”
Reporter Park Uimyung [email protected]