"Benefiting from data centers and policies... increasing weight in construction stocks"

[Financial News] Shinhan Investment & Securities issued an 'Overweight (Maintain)' rating on the construction sector, expecting earnings improvement driven by data centers and policy benefits. It recommended Hyundai Engineering and Construction, GS Engineering & Construction, and Asia Cement Co., Ltd. as top picks in the sector, taking into account benefits from increased construction investment, earnings sensitivity, and valuations.
On the 16th, Sunmi Kim, a researcher at Shinhan Investment & Securities, analyzed, "The key factor for the upward revision of construction companies' earnings in the short term is data centers," but added, "It should be viewed as a new business area that expands the earnings base of construction companies rather than a momentum for a multi-trillion-won market opening up in the short term."
This conclusion was reached after considering the strategies of global CSPs that start with a scale of 100 to 300 megawatts (MW) and gradually expand capacity, cases of logistics centers where increased investment from the financial sector led to oversupply, and risk management by construction companies.
Sunmi Kim stated, "Even considering only the existing order pipelines held by companies, the figure amounts to 1 to 2 trillion won per firm, and given the short construction periods, an annual revenue contribution of 500 to 800 billion won is expected in 2027 and 2028," adding, "As plans for the groundbreaking of AI data centers materialize, the performance of individual construction companies is expected to be further revised upwards."
Sunmi Kim further predicted, "The greater significance of mega-projects, including AI data centers, lies in their role as the starting point of the mid-to-long-term domestic construction investment cycle," adding, "As follow-up construction continues even after the industrial complex is established, the repeatability and sustainability of orders can be strengthened."
Shinhan Investment & Securities predicted that domestic construction investment would expand, centered on regional areas, as policy support is concentrated. It pointed out that factors supporting the expansion of construction investment include accelerated financing through credit enhancement and initial equity capital injection under the 'Super-Regional Special Account' and 'Balanced Growth Impact Assessment' established by the amendment of the Local Decentralization and Balanced Development Act last May, as well as improved business feasibility and incentives for regional investment.
Sunmi Kim stated, "The total construction cost (construction investment) for major projects currently underway or planned is estimated to be between 280 and 390 trillion won," adding, "New investment of 15 to 30 trillion won annually is expected, representing 8 to 15% of total domestic construction orders (10 to 20% excluding urban regeneration projects)."
"We expect a turnaround across the entire construction sector due to the expansion of domestic construction investment," she added, "and anticipate that investor interest, which had been concentrated on certain companies based on specific industry opportunities (order momentum), will spread to the entire industry."
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