We maintain our MARKET WEIGHT stance on the Korean construction
sector, despite recent improvements in the domestic housing market
outlook, the overseas business environment and liquidity.
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The sector’s sharp rebound during recent months fairly reflects most of
the positive developments, in our view, while most leading companies in
the sector currently trade at around the average valuation of the KOSPI.
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We are cautious on the domestic housing market outlook given the
weak housing affordability in Seoul metro area and weak housing
demand in the provincial areas, although its weak liquidity (which is a
result of the housing market slowdown) no longer seems a serious
negative catalyst.
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A higher base and the street’s high expectations are likely to limit
sustenance of the high growth and the probability of a positive
surprise in overseas new orders, in our view.
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In the meantime, we admit that the E&C sector would still be a
reasonable alternative for investors seeking high-beta exposure
anticipating further strength in the KOSPI and/or a stronger turnaround
in domestic macro conditions, given its high operational sensitivity to
the macro environment and its high price correlation with the KOSPI.
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GS E&C is our relative top pick in the sector, whereas Daewoo E&C is
our least preferred pick.