Hana Securities on the 14th raised its target price for GS Engineering & Construction(006360), reflecting expectations of orders for the Donghae data center. It kept its "Buy" rating and lifted the target price to 40,000 won from 36,000 won. GS Engineering & Construction's previous day's closing price was 38,500 won.
Kim Seung-jun, an analyst at Hana Securities, said, "The Donghae data center is proceeding as planned, so we reflected fourth-quarter order expectations in the valuation upgrade," adding, "There are five data centers to be carried out from last year to this year, and through the Donghae project we can expect orders for data centers on a gigawatt scale."
He added, "Because orders exceeding 10 trillion won can contribute to revenue within two to three years, the pace of companywide revenue growth could be very fast."
GS Group said when it announced its three mega projects that it would complete an artificial intelligence (AI) data center totaling 2.4 GW in Bukpyeong Second Industrial Complex in Donghae by 2028 for 1.2 GW (phase one) and by 2029 for 1.2 GW (phase two).
GS Engineering & Construction established the GSAI Infrastructure entity to develop the data center and set up subsidiaries including Donghae AI Campus 1, Donghae AI Campus 2, and Donghae AI Campus 3.
Kim said, "A plan is reportedly under review to expand in stages, starting with groundbreaking for 100 MW and adding further capacity," adding, "The land-use change has been completed, and the final review of the power system impact assessment has also passed."
The remaining step now is the building permit. It is reported that the application was filed in early last month and is under review. The building permit application covers only the phase-one project of 1.2 GW to be developed by 2028. After approval is granted in September or October, the project is estimated to be on track with a target to break ground in November.
Kim said, "If the scale is 100 MW, the order value is estimated at 1 trillion won, and it can contribute to GS Engineering & Construction's consolidation results."
On top of that, there is an outlook that results will improve starting in the second half. In the second quarter, about 50 billion won in expected losses were booked in plants (incinerator operations), and roughly 100 billion won including bad debt write-offs in SG&A were reflected, leading to weak results for GS Engineering & Construction.
From the second half, these one-off expenses are excluded, leaving room for an improvement in results. Analysts say margins can be expected in building and housing.