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Home , Gimpo, Gwacheon, Hanam, Namyangju, Pocheon

[] January 8, 2021

Construction (Overweight/Maintain) The great boom in apartment presales

Mirae Asset Daewoo Co., Ltd. Kwangsoo Lee [email protected]

Apartment presales increasing Nationwide a partment presales to increase 21% YoY in 2021 ó In 2021, we forecast regular apartment presale volume to expand 21% YoY to 270,000 units. ó For the capital area (including Gyeonggi and ), we anticipate presale volume to reach 140,000 units, the highest level since 2016. ó The private apartment presale market should receive a further boost from applications for apartments in third-phase “new town” developments, which are slated to begin in 2H21.

Presale market boom Record -high initial presale ratios and rising presale prices ó In 3Q20, initial presale ratios (private apartment projects) hit all-time highs: 96.4% nationwide and 99% in Gyeonggi. ó In October, the average presale price for apartments nationwide climbed 7% YoY to W3.85mn/m2. ó High initial presale ratios and rising prices are key triggers for private builders’ presale business expansion.

Opportunities and risks Presale volume growth to support earnings improvements ; uncertainties over excessive business expansion remain ó In 2021, large builders (Hyundai E&C, Daelim Industrial, GS E&C, Daewoo E&C, and HDC Hyundai Development) are targeting apartment presale volume of 130,000 units, up 25% from their actual presale volume in 2020. ó If housing projects proceed smoothly, housing revenue could double within three years. ó If profit growth continues on the back of robust housing revenue, we expect to see a rise in corporate value (+70%). We reiterate our Overweight call on the construction sector. ó Amid the current housing market boom, builders could seek aggressive business expansion (including in-house projects) and compete to win orders, leading to margin deterioration.

New apartment sales at record levels (initial presale ratios for private apartment projects)

(%) 105 Nationwide Gyeonggi

100 97 96 95 92 90 88 87 88 87 86 87 86 85 84 84 83 82 82 80 81 79 75 75 72 70 71

65

60 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 2Q20

Source: Korea Housing & Urban Guarantee Corporation, Mirae Asset Daewoo Research

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including t he US. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES AND DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. January 8, 2021 Construction

I. Robust presales momentum

Nationwide apartment presales to increase 21% YoY in 2021

In 2021, we forecast regular apartment presale volume to expand 21% YoY to 270,000 units. Inclusive of public housing and reconstruction/redevelopment projects, the presale figure is likely to reach 415,000 units, the highest level since 2016 and up 26% from the recent 10-year average of 330,000 units. Meanwhile, when factoring in approximately 60,000 units in third- phase new towns (for which presale applications are set to begin in 2H21), regular presale volume is likely to surpass 330,000 units, the second-highest level since 2000.

Figure 1. Regular apartment presale volume (nationwide); avg. of 200,000 units presold annually over the past 20 years

('000 units) 400 Regular apartment 350 presale volume to expand to 300 270,000 units

250

200

150

100

50

0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21F

Source: Real Estate 114, Mirae Asset Daewoo Research

Presale forecasts: 18,000 units in Seoul, 85,000 units in Gyeonggi, and 37,000 units in Incheon

In 2021, we forecast regular apartment presale volume in Seoul to reach 18,000 units, surpassing the recent 10-year average of 14,000 units. Reconstruction/redevelopment projects are likely to contribute to presale growth, with projects that had been delayed set to kick off. For the (including Gyeonggi and Incheon), we anticipate presale volume to reach 140,000 units, the highest level since 2016.

Figure 2. Apartment presale volume (Seoul, Gyeonggi, and Incheon combined)

('000 units) 190

151 140 127 122 112 111 103 104 97 92 96 84 80 79 78 68 61 56 53 53 48

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21F

Source: Real Estate 114, Mirae Asset Daewoo Research

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Presale market boom and third-phase new towns

Presale volume is increasing amid the market boom, as evidenced by record-high initial presale ratios. As of 3Q20, initial presale ratios (based on private apartment projects; presale ratios in the first three to six months) stood at 96.4% nationwide and 99% in Gyeonggi. Initial presale ratios are the strongest indicator of presale market conditions.

Figure 3. Initial presale ratios (private apartment projects)

(%) 105 Nationwide Gyeonggi

100 97 96 95 92 90 88 87 88 87 86 87 86 85 84 84 83 82 82 80 81 79 75 75 72 70 71

65

60 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 2Q20

Source: Korea Housing & Urban Guarantee Corporation, Mirae Asset Daewoo Research

Presale prices are also rising steadily despite a slew of regulations (including the presale price cap), reaching W3.85mn/m2 (based on an area of 60-85m2) as of October. Price increases are a key trigger for private builders’ presale business expansion.

Figure 4. Presale price trends (private apartment projects)

(60-85m 2, W'000/ ㎡)

5,000 Nationwide Gyeonggi 4,500

4,000

3,500 Price growth is a key trigger for private builders’ presale business 3,000 expansion

2,500

2,000 10/15 1/17 4/18 7/19 10/20

Source: Korea Housing & Urban Guarantee Corporation, Mirae Asset Daewoo Research

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In July, presale applications are scheduled to start for apartments in third-phase new towns (e.g., Wangsuk [], Gyosan [], and Gyeyang [Incheon]) and other cities (e.g., and ); applications will be open for approximately 30,000 units in 2H21 and another 30,000 units in 1H22. With prices set at relatively low levels, we expect the new town projects to provide a short-term boost to the private apartment presale market.

Figure 5. Presale apartment map

Source: MOLIT, Mirae Asset Daewoo Research

Table 1. Presale application plan/status (third-phase new towns and other cities) (Units) No. Region District Presale volume No. Region District Presale volume Wangsuk 1 Gyeonggi 6,400 18 Seoul Gangseo 300 (Namyangju ) Changneung 2 Gyeonggi 4,100 19 Gyeonggi (Hanam) Wirye 300 ( ) 3 Gyeonggi Gyosan (Hanam) 3,600 20 Seoul Magok 200 Yongjin Platform 4 Gyeonggi 3,300 21 Seoul Eunpyeong 100 City Yongsan 5 Gyeonggi Daejang () 3,000 22 Seoul 3,000 Maintenance Depot Yangjeong Station Bokjeong 1, 2 6 Gyeonggi 2,800 23 Gyeonggi 1,000 area (Namyangju ) (Seongnam ) 7 Gyeonggi Geomo () 2,700 24 Gyeoggi Hajung (Siheung) 1,000 8 Gyeonggi Gyeyang (Incheon) 2,600 25 Gyeonggi Ujeong () 1,000 Wangsuk 2 9 Gyeonggi 2,500 26 Gyeonggi Daeyami () 1,000 (Namyangju ) Jinjeob 2 Naksaeng 10 Gyeonggi 2,300 27 Gyeonggi 800 (Namyangju ) (Seongnam ) 11 Incheon Jangsang () 2,200 28 Gyeonggi Tanhyeon (Goyang) 600 Gwacheon Gwanyang 12 Gyeonggi 1,800 29 Gyeonggi 400 (Gwacheon) (Anyang ) Indeogwon 13 Gyeonggi Singil 2 (Ansan) 1,400 30 Gyeonggi 300 (Anyang ) Hakon Cheonggye 2 14 Gyeonggi 1,100 31 Gyeonggi 300 ( ) ( ) Station Area Namtaeryeong 15 Incheon 1,000 32 Seoul 300 (Geomam ) Military Base Noryangjin Military 16 Gyeonggi Yeokgok (Bucheon) 800 33 Seoul 200 Base Sinchon 17 Seoul Gangil (Godeok) 500 34 Gyeonggi 200 (Seongnam ) 35 Gyeonggi Maegok (Anyang) 200 Source : MOLIT , Mirae Asset Daewoo Research

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As third-phase new town projects gain traction, we expect domestic builders to accelerate and scale up their presale operations. Notably, sale prices are typically higher for private apartment projects than for public housing projects (due to higher land prices). As such, the expansion of public housing projects could lead to a decline in private apartment presale volume. Given this, builders are likely to begin their presale operations before the start of presales for the aforementioned public projects. For private projects with less commercial potential, presales could proceed at an even faster pace.

Indeed, this is evident in the 2021 presale plans for domestic private housing projects. Within Gyeonggi, we note that , , Uijeongbu, and (cities where private housing projects have been pushed back due to limited commercial appeal), as well as Gapyeong, , and Yeoncheon (areas with the lowest commercial potential), account for a higher share of planned regular presale volume in 2021 compared to the past three-year average. This suggests good prospects for overall presale volume growth in 2021.

Figure 6. Gyeonggi: Regular presale volume breakdown by city (2021F vs. 2018-20 average)

Gunpo Most recent 3 years 2021 Yeoncheon Hanam Namyangju Gwacheon Bucheon Gapyeong Pocheon Ansan Siheung Seongnam Gwangmyeong Yangpyeong Goyang Anyang Uiwang Hwaseong Paju Uijeongbu Gwangju Yongin 0% 2% 4% 6% 8% 10% 12% 14% 16%

Source: Real Estate 114, Mirae Asset Daewoo Research

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II. Presale volume growth to support earnings improvements

Large builders’ presale volume to increase 25% in 2021

In 2021, large builders (Hyundai E&C, Daelim Industrial, GS E&C, Daewoo E&C, and HDC Hyundai Development) are targeting apartment presale volume of 130,000 units, up 25% from their actual presale volume in 2020. This would mark the second consecutive year of YoY growth (vs. 78,000 units in 2019 and 103,000 units in 2020).

Table 2. Large builders’ annual apartment presale volume (2019-21F) (Units )

Builder 2019 2020 2021F Growth Hyundai E&C 13,500 21,000 28,600 36% GS E&C 16,616 27,000 28,300 5% Daewoo E&C 20,655 32,000 34,800 9% Daelim Industrial 20,600 10,000 19,586 96% HDC Hyundai 6,300 13,000 17,762 37% Development Total 77,671 103,000 129,048 25% Source: Company data , Mirae Asset Daewoo Research

Housing profit growth to continue

We expect large builders’ housing revenue and profits to grow in 2021, driven by apartment presale volume growth. In 2020, we estimate the combined value of large builders’ housing projects jumped 42% YoY to W34tr (vs. W24tr in 2019). We forecast this figure to expand 35% YoY to W46tr in 2021 (based on presale volume planned for the year).

If large builders achieve their 2021 apartment presale targets, their housing revenue will likely double from 2020 levels. In 2019-21, the average value of domestic housing projects is estimated at around W34tr (assuming a project period of three years). In 2020, housing revenue is estimated at only W17tr. As such, if housing projects proceed smoothly, housing revenue could double within three years.

Table 3. Estimated value of the housing business based on presale volume growth 2019 2020 2021F Notes Sum of the five large Presale volume 77,671 103,000 129,048 builders’ presale volumes Avg. presale price per 3,589 3,847 4,155 W’000/m2 square meter Avg. presale price per 305,065 326,995 353,155 85m2 in area unit Total housing project 24 34 46 Wtr value Avg. project value 5 7 9 Wtr Source : Korea Housing & Urban Guarantee Corporation , Mirae Asset Daewoo Research

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Table 4. Estimated value of housing business by builder (Wbn) 2020 housing Builder 2019 2020 2021F Three-year avg. (1) (1)/(2) revenue (2 ) Hyundai E&C 4,118 6,867 10,100 7,028 4,167 1.7 GS E&C 5,069 8,829 9,994 7,964 3,932 2.0 Daewoo E&C 6,301 10,464 12,290 9,685 3,764 2.6 Daelim Industrial 6,284 3,270 6,917 5,490 2,663 2.1 HDC Hyundai 1,922 4,251 6,273 4,149 2,397 1.7 Development Average 4,739 6,736 9,115 6,863 3,385 2.0 Source : Company data , Korea Housing & Urban Guarantee Corporation , Mirae Asset Daewoo Research

If profit growth continues on the back of robust housing revenue, we expect to see a rise in corporate value. Assuming that large builders’ presales proceed smoothly and that their housing OP margins remain at 2020 levels, we estimate their average multiple (market cap to estimated operating profit) at only 2.6x. Applying a target multiple of 4.5x would yield implied upside of more than 70% to large builders’ corporate value. This is the reason that presales and housing market changes warrant keen attention this year.

Meanwhile, we also see some risks. First, housing margins, which are currently at historic levels, could deteriorate in the event of intensifying competition and rising public presales. Second, excessive investment risks remain. Amid the current housing market boom, builders are tempted to expand their businesses by purchasing land (even at expensive prices), offering payment guarantees, or competing to win orders. Indeed, some companies have announced aggressive in-house projects. During past market booms, excessive business expansion hurt builders. As such, we believe investors should pay attention to risks as well as opportunities.

Figure 7. Unsold apartment inventory (nationwide)

('000 units) 180

160 Unsold housing inventory increased sharply after excessive business 140 expansion amid a market boom 120

100

80

60

40

20

0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Source: MOLIT, Mirae Asset Daewoo Research

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Appendix 1

Important disclosures and disclaimers Two-year rating and TP history

Company Date Rating TP (W) Company Date Rating TP (W) GS E&C (006360) 12/18/20 Buy 5,500 12/18/20 Buy 50,000 05/20/20 Buy 4,800 05/04/20 Buy 37,400 09/15/19 Buy 6,800 12/03/19 Buy 48,700 10/25/18 Buy 7,900 10/25/19 One year 63,000 Hyundai E&C (000720) 10/25/18 Buy 63,000 12/18/20 Buy 47,000 Daelim Industrial (000210) 04/27/20 Buy 43,600 12/18/20 Buy 105,000 12/03/19 Trading Buy 48,000 10/31/20 One year 116,000 01/25/19 Buy 75,300 10/31/19 Buy 116,000 06/29/18 Buy 65,400 01/31/19 Trading Buy 116,000 10/25/18 Trading Buy 96,000 Daewoo E&C (047040)

(W) GS E&C (W) Daelim Industrial (W) Daewoo E&C (W) Hyundai E&C 80,000 150,000 10,000 80,000

8,000 60,000 60,000 100,000 6,000 40,000 40,000 4,000 50,000 20,000 20,000 2,000

0 0 0 0 Jan 19 Jan 20 Jan 21 Jan 19 Jan 20 Jan 21 Jan 19 Jan 20 Jan 21 Jan 19 Jan 20 Jan 21

Stock ratings Sector ratings Buy Expected 12-month performance: +20% or greater Overweight Expected to outperform the market over 12 months Trading Buy Expected 12-month performance: +10% to +20% Neutral Expected to perform in line with the market over 12 months Hold Expected 12-month performance: -10% to +10% Underweight Expected to underperform the market over 12 months Sell Expected 12-month performance: -10% or worse

Rating and TP history: Share price ( ─), TP (▬), Not Rated ( ■), Buy ( ▲), Trading Buy ( ■), Hold ( ●), Sell ( ◆) * Our investment rating is a guide to the expected return of the stock over the next 12 months. * Outside of the official ratings of Mirae Asset Daewoo Co., Ltd., analysts may call trading opportunities should technical or short-term material developments arise. * The TP was determined by the research analyst through valuation methods discussed in this report, in part based on estimates of future earnings. * TP achievement may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.

Ratings distribution and investment banking services Buy Trading Buy Hold Sell Ratings distribution 78.43% 11.76% 8.50% 1.31% Investment banking services 66.67% 22.22% 11.11% 0.00% * Based on recommendations in the last 12-months (as of December 31, 2020)

Disclosures As of the publication date, Mirae Asset Daewoo Co., Ltd. has acted as a liquidity provider for equity-linked warrants backed by shares of Daelim Industrial, Hyundai E&C, GS E&C as an underlying asset; other than this, Mirae Asset Daewoo has no other special interests in the covered companies. As of the publication date, Mirae Asset Daewoo Co., Ltd. is acting as a financial advisor to Daewoo E&C for its treasury share buyback and cancellation.

Analyst certification The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws or regulations thereof. Each Analyst responsible for the preparation of this report certifies that (i) all views expressed in this report accurately reflect the personal views of the Analyst about any and all of the issuers and securities named in this report and (ii) no part of the compensation of the Analyst was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report. Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s area of coverage, and the Analysts do not serve as an officer, director, or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. Like all employees of Mirae Asset Daewoo, the Analysts receive compensation that is determined by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading, and private client divisions. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Mirae Asset Daewoo except as otherwise stated herein.

Disclaimers

Mirae Asset Daewoo Research 8 January 8, 2021 Construction

This report was prepared by Mirae Asset Daewoo, a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled in good faith and from sources believed to be reliable, but such information has not been independently verified and Mirae Asset Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein or of any translation into English from the Korean language. In case of an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws, and accounting principles, and no person whose receipt or use of this report would violate any laws or regulations or subject Mirae Asset Daewoo or any of its affiliates to registration or licensing requirements in any jurisdiction shall receive or make any use hereof. This report is for general information purposes only and is not and shall not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The report does not constitute investment advice to any person, and such person shall not be treated as a client of Mirae Asset Daewoo by virtue of receiving this report. This report does not take into account the particular investment objectives, financial situations, or needs of individual clients. The report is not to be relied upon in substitution for the exercise of independent judgment. Information and opinions contained herein are as of the date hereof and are subject to change without notice. The price and value of the investments referred to in this report and the income from them may depreciate or appreciate, and investors may incur losses on investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. Mirae Asset Daewoo, its affiliates, and their directors, officers, employees, and agents do not accept any liability for any loss arising out of the use hereof. Mirae Asset Daewoo may have issued other reports that are inconsistent with, and reach different conclusions from, the opinions presented in this report. The reports may reflect different assumptions, views, and analytical methods of the analysts who prepared them. Mirae Asset Daewoo may make investment decisions that are inconsistent with the opinions and views expressed in this research report. Mirae Asset Daewoo, its affiliates, and their directors, officers, employees, and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Mirae Asset Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making, or other financial services as are permitted under applicable laws and regulations. No part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Mirae Asset Daewoo. For further information regarding company-specific information as it pertains to the representations and disclosures in this Appendix 1, please contact [email protected] or +1 (212) 407-1000.

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