Due to the aftermath of the Dec. 3 martial law incident, the stock prices of certain construction companies are soaring. The stock prices of mid-sized construction firms ranked outside the top 50 in construction capability evaluations have more than doubled in the four trading days following the announcement of martial law, up to Nov. 9. The market capitalization, which reflects corporate value, has also surpassed that of mid-tier construction companies ranked within the top 50 in construction capability evaluations. This severe distortion in corporate value is attributed to projections linking it to Lee Jae-myung, the representative of the Democratic Party.
According to the Korea Exchange on the 10th, Ilseong Construction and Dongshin Construction recorded limit-up prices and finished trading on the 9th. Ilseong Construction saw its stock price rise to 3,620 won, which is 29.98% higher than the previous trading day. Considering the closing price of 1,559 won on the announcement date of martial law, the stock price surged 132.2% (2,061 won) in just four trading days. During the same period, the corporate value (market capitalization) increased by more than 110 billion won, from 84.225 billion won to 195.57 billion won. This is similar to the level of Dongwon Development, which is ranked 31st in construction capability evaluations (211.583 billion won).
The surge in Ilseong Construction's stock price is related to the increasing attention on Lee Jae-myung, the representative of the Democratic Party, amid the ongoing political turmoil from martial law and impeachment. Ilseong Construction, headquartered in Yongin, Gyeonggi Province, is expected to benefit from the expansion policy of 'basic housing' that Lee pledged during his term as governor.
Ilseong Construction is known as a comprehensive construction company ranked 56th this year in construction capability evaluations, founded by Moon Hyun-jin, the third son of the Unification Church founder Moon Seon-myung. The largest shareholder is IB Capital, with a shareholding of 63.88% (34,512,600 shares). In the third quarter of this year, the company reported an operating loss of 941.87 million won and a net loss of 1.4798 billion won.
Dongshin Construction, which is not even in the top 100 in construction capability evaluations, also saw its stock price rise to the limit of 57,200 won on the same day. Compared to the closing price on Dec. 3 (20,900 won), it increased by 173.6% (36,300 won) in just four trading days.
Dongshin Construction is headquartered in Andong, North Gyeongsang Province, which is Lee Jae-myung's hometown. The market capitalization of Dongshin Construction, which was in the 170 billion won range before the martial law incident, rose to 480.48 billion won. This is more than four times larger than the market capitalization of Gyeryong Construction, which is ranked 17th in construction capability evaluations (107.17088 billion won). In the third quarter of this year, Dongshin Construction reported an operating profit of 1.3 billion won and a net profit of 1.9 billion won.
The Korea Exchange has requested an inquiry disclosure related to the sharp rise in stock prices of Ilseong Construction and Dongshin Construction. This procedure aims to confirm whether there are reasons for the stock price surge that investors are unaware of. Dongshin Construction stated, 'We have carefully reviewed the impact on stock prices and transaction volumes, and there is no significant information that needs to be disclosed regarding the recent substantial market fluctuations.' Ilseong Construction is expected to disclose its stance on this matter by 6 p.m. on the 10th.
A construction industry official noted, 'The increase in stock prices of small and medium-sized construction companies is merely a result of being classified as thematic stocks, and the distortion in corporate value will be resolved over time.'
There are also criticisms that Lee's pledge for basic housing does not benefit only specific construction companies, but the market has misinterpreted this. Basic housing can be occupied by anyone without specific asset or age requirements, unlike existing rental housing, which has income, asset, and age eligibility criteria. It is divided into 'long-term rental type,' which can be rented for over 30 years, and 'land lease division type,' where the land is owned by the public and only the housing is sold to the occupants.
Kim Gi-ryong, a researcher at Mirae Asset Securities, explained, 'Mid-sized construction companies like Kumho Construction, Taeyoung Construction, and Kolon Global have relatively high proportions in rental and public housing projects.' He added, 'Even among large construction companies, there are those like DL Construction of DL E&C and GS Engineering and Construction's Xi S&D that utilize subsidiaries to undertake such projects.' Kim noted that large companies do not actively engage in rental and public housing projects due to lower margins and smaller project scales compared to private housing projects, indicating that the basic housing pledge is not an exclusive realm for companies like Ilseong Construction.