In the first quarter of this year (January to March), the performance recovery of major construction companies such as DL E&C, HDC Hyundai Development Company, and GS Engineering and Construction is expected. DL E&C and HDC Hyundai Development Company are anticipated to see their operating profit rise by over 40% compared to the same period last year, leading to an expected "earnings surprise." It is noted that the reduction in high-cost projects has gradually improved profitability.
On the other hand, Samsung C&T, Samsung E&A, Hyundai E&C, and Daewoo E&C are expected to see their performance worsen by around 20-40% compared to last year. This indicates that the first results of major large construction companies this year are mixed. Most construction companies are set to announce their first-quarter results by the end of this month.
According to the construction industry and financial information firm FnGuide on the 10th, DL E&C is projected to have the highest increase in operating profit among construction companies for the first quarter, with estimates from three or more securities firms. DL E&C is expected to record an operating profit of 90 billion won in the first quarter. This figure represents a 47.8% increase (29.1 billion won) compared to the same period last year (60.9 billion won). Yu-rim Song, a researcher at Hanwha Investment & Securities, analyzed that "growth in the plant sector will offset the decline in revenue from the housing sector and its subsidiary, DL Construction," predicting continued improvement in DL E&C's profitability.
The primary reason for DL E&C's improved profitability is the completion of high-cost projects, which leads to a decrease in the cost rate (the percentage of costs in the selling price). According to Hanwha Investment & Securities, DL E&C completed four construction sites in the first quarter that had a cost rate of 90-100%. A DL E&C official also said, "We expect profits to increase as most of the sites with high cost rates have been resolved this year."
HDC Hyundai Development Company is also projected to see a significant increase in operating profit for the first quarter. The estimated operating profit for the first quarter is 59.6 billion won, up by 43.3% from 41.6 billion won in the same period last year. Among major large construction companies, only DL E&C and HDC Hyundai Development Company are expected to see operating profit rise by over 40% in the first quarter.
The reason for the expected recovery of HDC Hyundai Development Company's operating profit is that the sales proceeds from the Seoul One I-Park, being developed as part of the Gwangwoon University Station development project in Nowon-gu, Seoul, will lead to profits. HDC Hyundai Development is constructing residential complexes, residences, commercial facilities, and rest areas at the former Seongbuk Station (now Gwangwoon University Station) rail logistics base with a project cost of 4.5 trillion won. Seoul One I-Park will consist of eight buildings, 49 floors above ground and 4 floors underground, with a total of 3,032 apartments located at 145, Hwaryang-ro 45-gil, Nowon-gu. Hana Securities estimates that the annual operating profit from Seoul One I-Park will be 420 billion won this year. According to the housing market, the current sales rate of Seoul One I-Park is around 90%.
GS Engineering and Construction is also expected to see its operating profit increase by nearly 30% in the first quarter. The estimated operating profit for the first quarter is 90.3 billion won, up by 28% compared to 70.5 billion won in the same period last year.
On the other hand, there are construction companies expected to see a significant decline in profit compared to last year. Hyundai E&C (including its subsidiary Hyundai Engineering), which recorded an operating loss of 1.2209 trillion won last year, is estimated to have an operating profit of 181.6 billion won in the first quarter of this year, which is a decrease of 27.6% compared to the same period last year. Daewoo E&C is also projected to record an operating profit of 114.8 billion won in the first quarter of 2024, but it is expected that the first quarter of this year will see a decline to 83.4 billion won. Samsung E&A's operating profit is also anticipated to be 176.3 billion won in the first quarter, a decrease of 15.8% compared to the same period last year. Samsung C&T's operating profit in the first quarter is also expected to decrease by 6.4% to 667 billion won compared to the same period last year.
Lee Eun-hyung, a research fellow at the Korea Construction Policy Institute, noted, "While some construction companies have improved their first-quarter results, it is still judged that this does not lead to an overall improvement in the industry and profitability. It seems that many construction companies will need a little more time for profits to increase." Jeon Young-jun, head of the Future Industry Policy Research Division at the Korea Institute of Construction Technology, stated, "Although cost rate improvements are gradually occurring centered around the top 10 large construction companies, external uncertainties stemming from the United States make it difficult to be optimistic about the construction industry, which relies on contracts, and it is not easy to predict the timing of construction companies' profit improvements."
Meanwhile, most major construction companies are expected to disclose their results by the end of this month. HDC Hyundai Development Company plans to announce its results around the 25th. Hyundai E&C, Hyundai Engineering, and Daewoo E&C are scheduled to announce their results on the 29th, while Samsung C&T and GS Engineering and Construction will disclose their results on the 30th. Samsung E&A is also slated to release its results by the end of this month.