Construction stocks have been showing strength in August, moving in the exact opposite direction of the overall KOSPI trend. As nuclear power momentum has subsided, artificial intelligence (AI) data centers and U.S. power plant projects are filling the void, drawing liquidity across the entire sector.

Construction Index Rises 17.42% Over 5 Days According to the Korea Exchange, the KOSPI construction index rose 17.42% from August 3 to 7. Among individual stocks, Daewoo E&C surged significantly, while DL E&C and Hyundai E&C also rose across the board.

AI Data Centers: 100 Trillion Won Market Expected The AI data center expansion scale of 18.4 GW (gigawatts) was presented in the three major mega projects promoted by the government. LS Securities estimated that assuming construction costs of 12 billion to 13 billion won per MW (megawatt), the related market size would exceed 100 trillion won. This is close to half of the total domestic construction orders received last year.

The power plant market, which responds to surging electricity demand in the United States, is also cited as a new opportunity. As the $19.8 billion Ennis gas combined-cycle power generation project in Texas is being considered as the first U.S. investment project, expectations are growing for domestic construction companies to enter the U.S. energy market.

Securities Firms Say "Overweight"... Data Centers as Core Investment Point In reports released on August 10 by KB Securities and LS Securities, they maintained an "overweight" investment opinion on the construction sector, stating that "it is time to consider upside rather than downside risk," with analysis that new growth axes such as data centers and nuclear power could open the upper end of industry valuations. Hana Securities Research Center also evaluated data centers as the most promising growth driver in an industry report following its second-quarter review, summarizing them as a core investment point. Earnings are also supporting stock prices.

Overheating Concerns... PBR Already at 1.5x Level However, concerns about overheating have also been raised. Due to the recent surge in stock prices, the price-to-book ratio (PBR) of the construction sector has risen to 1.5x, and for large construction firms, it has reached the 1.7x level.

Hana Securities researcher Kim Sang-man evaluated that while operating profitability has somewhat recovered due to an increased share of new businesses, as revenue contraction begins in earnest, the possibility of short-term credit rating improvement for the overall construction industry is limited when considering risks such as unsold housing, move-in delays, accounts receivable collection, and PF contingent liabilities.

Three Key Variables to Monitor Going Forward The variables to be confirmed going forward can be summarized into three.

• First, whether actual order announcements related to data centers will be released
• Second, the contract progress and schedule of U.S. energy projects such as the Ennis gas combined-cycle power plant in Texas
• Third, how the burden of financing costs due to rising market interest rates and the deterioration of PF business viability will be reflected in earnings

Given the observation that expectations are already priced in, it is necessary to refrain from making definitive forecasts until they are confirmed by next quarter's earnings and order announcements.

[※ This article is for investment reference only and does not recommend buying or selling any specific stock. Investment decisions and responsibilities lie with the investor. This article was written with AI assistance.]