Xi S&D's construction-start boost outweighs AI optimism ... operating profit to rise 72% next year

[Financial News] Despite concerns about delays in investment in artificial intelligence (AI) infrastructure, Xi S&D's earnings growth is expected to gather pace in earnest starting next year. Analysts say that construction projects already underway, rather than expectations for new data center orders, will underpin earnings improvement.
On the 2nd, Sunmi Kim, an analyst at Shinhan Investment & Securities, maintained a 'Buy' rating on Xi S&D and set a target price of KRW 11,000, 8.3% below the previous target. The firm factored uncertainty in the AI industry into its valuation but maintained its outlook for earnings improvement in 2027.
Xi S&D's third-quarter revenue came to KRW 419.4 billion, 11% above market expectations. As construction of Naver Data Center GAK Sejong began contributing to revenue in earnest, it drove top-line growth at its subsidiary Xi C&A.
Operating profit, by contrast, came to KRW 7.8 billion, 34% below market expectations. This was due to an adjustment to the cost ratio for the GAK Sejong data center being pushed back to the fourth quarter, as well as KRW 2.8 billion in costs related to subcontractors at housing construction sites being recognized.
Shinhan Investment & Securities focused less on the weak earnings and more on the pace of future improvement. It expects revenue growth to accelerate as the impact of construction getting underway at the Paju 1239 data center adds to that of GAK Sejong. Given the accounting practice of applying conservative cost ratios in the early stages of construction, a substantial improvement in profitability is expected next year.
Accordingly, it estimated that 2027 revenue and operating profit would rise 32% and 72%, respectively, from the previous year. Whether the Donghae AI data center project secures an anchor tenant in the first quarter of next year is a variable, but the firm judged that earnings growth is highly visible even with only the existing projects in Sejong City and Paju.
The company's valuation appeal also came into focus. Based on Shinhan Investment & Securities' estimates, its projected 2027 price-to-earnings ratio (PER) is 6.2 times and its price-to-book ratio (PBR) is around 0.5 times.
Kim said, “The focus is on earnings improvement backed by projects that have actually broken ground, rather than expectations for new orders,” while maintaining Xi S&D as the top pick among mid-sized construction firms. Despite a share-price correction amid uncertainty over AI investment, the prospects for earnings growth next year and a revaluation of the company remain strong.


[email protected] Kim Gyeong-a Reporter