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Growth premiums compelling
A long-term growth cycle driven by major infrastructure projects A
new heyday is coming for the Korean construction industry. Many
government-led programs worth a total of W230tr are beginning to take
shape under balanced national development initiatives. Japanese-style
urban redevelopment, which is emerging as a new growth driver, is
estimated to grow into a market worth W300tr. In overseas markets, the
plant construction boom is spilling over to new city development copied
from Korea’s development experience. In this fertile growth environment,
sales and operating profit growth at the top five builders seasoned in
infrastructure development is expected to reach a five-year CAGR of 16.6%
and 20.6%, respectively, in 2012.
Near-term momentum mature The construction sector index has remained
sluggish this year due to valuation concerns, investors’ impatience with the
pace of deregulation, and housing market jitters. Things are looking up in
2Q08 as these negatives are beginning to give way to the sector’s upside
potential. The housing market is poised for a recovery as the government’s
deregulation steps make progress and unsold apartment inventory growth is
being reversed. Momentum is also growing on the overseas front as major
Korean contractors are expected to win more projects.
Top picks: Samsung C&T Corporation and Hyundai E&C We are
overweight the construction sector with a top-pick focus on Samsung C&T
Corporation, Hyundai E&C, Hyundai Development and Daelim Industrial.
Top-tier builders are on the winning edge over smaller rivals as big
infrastructure projects are driving industry growth at home and abroad.
Major Korean builders writing success stories in emerging markets deserve a
re-rating.
Construction April 22, 2008
2
Contents
Investment Summary
3
Valuation
6
Deregulation, housing and overseas momentum
10
Growth still hums along in the domestic market
15
The blue ocean of new development projects
17
Overseas: Plant construction boom spills over to new cities
20
Company
Samsung C&T Corporation (000830, BUY, TP W95,600)
Hyundai E&C (000720, BUY, TP W116,000)
Hyundai Development (012630, BUY, TP W94,000)
Daelim Industrial (000210, BUY, TP W193,000)
GS E&C (006360, BUY, TP W187,000)
Daewoo E&C (047040, BUY, TP W27,100)
KeangNam Enterprises (000800, BUY, TP W53,000)
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