Construction shares outlook downgraded due to project financing woes

An apartment construction site in Gwangju is seen in this Jan. 15 photo. Yonhap

A growing number of local brokerages are revising down their target prices for construction industry shares, in an attempt to better reflect the project financing risks highlighted by the case of Taeyoung Engineering & Construction's debt renegotiations, market watchers said Sunday.

This is the latest in the continued voicing of concerns regarding local developers' deteriorating financial soundness. Standard & Poor’s (S&P) said in a Jan.17 report that a greater number of local construction and project financing businesses will struggle in the months to come, due to a sustained slowdown in the real estate market, compounded by higher borrowing costs.

“The government will not introduce stimulus packages to reinvigorate the real estate market, given the elevated housing prices over the past few pandemic years aided by low interest rates. Credit risks for non-bank financial entities will heighten substantially,” the report said.

Data from FnGuide, a financial information service provider, showed that six of 11 construction company shares had their outlook downgraded this year. The 11 were among the listed firms subject to regular share price reviews by at least three securities firms.

Kolon Global suffered the steepest downgrade revision. The target price stood at 13,667 won ($10) as of Jan.18, down 10.9 percent compared to Dec. 31 last year.

Kyobo Securities said the revision is warranted due to real estate project financing risks and debt exposures. The brokerage lowered Kolon Global's target price to 10,000 won, down from 15,000 won and retracted earlier recommendations to maintain an overweight position. 

“Kolon has heavy debts relative to equity. Its housing and project financing businesses are in non-Seoul metropolitan regions vulnerable to high risks of vacancies. The company should review its capacities to absorb losses,” the report said.

The target price of Daewoo Engineering & Construction was lowered to 5,794 won this year, down 2.9 percent from 2023.

Korea Investment & Securities said that Daewoo’s project financing guarantees stood at about 1 trillion won as of the end of last year. "About 63 percent of the projects have yet to initiate construction," the report said. 

The target prices of Hyundai Engineering & Construction, GS Engineering & Construction, Samsung Engineering and Kumho Engineering & Construction were lowered by an average of about 5 percent.