Analysts in the securities industry said the construction sector has entered a zone where valuation burdens are heavy as multiple positives have been priced in at once. They also noted that because share prices are rising much faster than short-term earnings are improving, market caution that the current price levels are burdensome is inevitable.
Ryu Tae-hwan, an analyst at Eugene Investment & Securities, said, "At present, positives for the construction sector—nuclear power, Small Modular Reactor (SMR), investment in the United States, Middle East reconstruction, and the resumption of the postwar investment cycle by oil-producing countries—have all been reflected at once."
There are also variables that could weaken investor sentiment toward construction in the short term.
Ryu said, "There is a possibility that ready-mixed concrete pouring could be halted due to unstable naphtha supply and demand," adding, "If pouring is halted because of the naphtha shock despite the government's all-out response, the impact could extend to subsequent processes and lead to a sharp slowdown in revenue."
Naphtha is used as a basic raw material for admixtures for ready-mixed concrete, and admixtures are essential materials that determine the fluidity, strength, and durability of concrete.
It analyzed that current share prices in the construction sector are moving more on expectations (valuation expansion) than on short-term earnings, suggesting the need to approach evaluation from a different angle rather than only on short-term results.
The growth story of construction—such as nuclear power and Middle East reconstruction—is likely to extend into a mid- to long-term investment cycle rather than being a one-off. Although there are risk factors such as a naphtha shock, it maintained an "overweight" view on construction.
For investment strategy, it recommended a selective approach centered on stocks whose share-price burden is relatively small and whose growth drivers have not yet been fully reflected by the market. It then presented DL E&C as the top pick and Samsung E&A as the second pick.
Ryu said, "For DL E&C, following the CI (Conventional Island) standardization design contract with U.S. nuclear power company X-energy, linked orders for the NI (Nuclear Island) design contract are expected," adding, "Through this, it will build a solid position in the SMR market as a key supply chain partner for X-energy."
With the plant order cycle expected to resume, DL E&C's plant revenue share (33.4%) and the size of its professional workforce (1,468) were also cited as competitive in terms of execution capacity (CAPA).
For Samsung E&A, an increase in captive (intra-affiliate) volume is expected.
Ryu said, "Samsung Electronics' plan to execute more than 110 trillion won in facility and research and development (R&D) investment in 2026 is at least a 22% increase from the previous year," adding, "If internal group orders—expected to provide stable revenue and profit—increase, that becomes a factor that can justify the current share price even if it is somewhat high."