[Click eStock] “GS Construction to Rebuild Incheon Jaian Dante... Large-scale Losses Inevitable”

On the 6th, Samsung Securities analyzed that GS Construction would inevitably have to reflect a large-scale provision following the decision to completely reconstruct Incheon Geomdan Xi An Dante.

On April 29, the Ministry of Land, Infrastructure and Transport announced the results of the investigation into 1,666 households at the Incheon Geomdan Xi An Dante site, where a parking lot collapse occurred. According to the ministry, the causes of the collapse were mainly threefold: ▲ omission of shear reinforcement bars (rebar) found in both design and construction ▲ reduced concrete strength ▲ excessive soil load. The conclusion was that there were problems in all areas including design, construction, and supervision. Accordingly, GS Construction made a sudden decision on the afternoon of the previous day to fully reconstruct the Incheon Geomdan site to protect its brand.

Baek Jae-seung, a researcher at Samsung Securities, stated in a report on the same day, “Due to the decision for full reconstruction, the company is likely to recognize a large-scale provision encompassing accounting loss treatment for already recognized sales, demolition costs, delay compensation, and resident compensation.”

Considering GS Construction’s 40% stake in the Incheon Geomdan site, GS Construction had won a total contract amount of 110.9 billion KRW and recognized about 66.3 billion KRW in sales by the end of the first quarter of this year. Researcher Baek explained, “Since the scale of demolition costs and compensation is not yet clear, it is difficult to specify the total amount of provisions immediately, but it seems highly likely that some or all of it will be reflected in the second or third quarter earnings.”

He added, “For reference, HDC Hyundai Development Company, which experienced the collapse accident at the Gwangju Hwajeong site last January, recognized a provision of 370 billion KRW, exceeding the contract amount of 255.7 billion KRW (with a progress rate of over 50% before the accident). Therefore, it seems highly likely that GS Construction’s provision scale will also exceed the existing contract amount.”

Furthermore, he emphasized, “Reflecting a provision of 150 billion KRW based on HDC Hyundai Development Company’s similar case and increased costs for safety reinforcement, we are lowering this year’s operating profit estimate by 39% compared to the previous estimate. It should be noted that uncertainty may continue at least until the Ministry of Land, Infrastructure and Transport announces the results of the overall site investigation and the disposition results of this accident in August.”

This content was produced with the assistance of AI translation services.