Duksin Construction, a specialty contractor focused on mechanical equipment and other work, is entering a rehabilitation procedure (court receivership). Duksin Construction handled mechanical equipment for major construction projects, including the Busan LCT mixed-use development and the Dunchon Jugong redevelopment. Its contracted ranking in mechanical equipment construction is No. 1 in South Gyeongsang and No. 23 nationwide. As the real estate slump drags on, even sizable specialty contractors are facing growing management burdens.
According to the construction industry and legal circles on the 31st, the Seoul Bankruptcy Court decided on the 26th to commence rehabilitation proceedings for Duksin Construction. It generally takes around a month for a court to decide to commence rehabilitation proceedings, but for Duksin Construction, proceedings began just 10 days after applying for corporate rehabilitation on the 16th. Duksin Construction must submit its rehabilitation plan by Apr. 10 next year.
Based in Jinju, South Gyeongsang, Duksin Construction is a specialty contractor with strength in mechanical equipment construction established in 1987. It took part in mechanical equipment work for high-difficulty projects such as the Haeundae LCT mixed-use development, the National Intelligence Service Gongju Data Center new construction, Samsung Hospital remodeling, and the Dunchon Jugong redevelopment.
According to the Korea Mechanical Equipment Construction Association, Duksin Construction's construction performance last year was 209.1 billion won. Its construction capacity under mechanical equipment and gas construction standards is 181.6 billion won, ranking No. 23 nationwide and No. 1 in South Gyeongsang Province. As of last year, sales were 249.8 billion won, operating profit 1.2 billion won, and net profit 800 million won.
The company's sales last year rose 2.4% from a year earlier, but profitability deteriorated as the prolonged real estate downturn and rising construction costs such as materials and labor pushed up costs. Operating profit fell 26.3%, and net profit plunged 43.7%. Duksin Construction's cost of sales ratio topped 97%, showing an "ultra-low-margin structure." The debt ratio stands at 206%, flashing a warning light.
Duksin Construction's accounts receivable, including unpaid construction receivables, totaled 55.3 billion won, accounting for most of its assets. Generally, when accounts receivable make up a large share of assets, delayed collection can strain cash flow.
In the construction industry, there is talk that not only Duksin Construction but specialty contractors across the board are facing a management crisis as the real estate slump persists. Risks from prime contractors, such as general contractors or developers, are being transferred, pushing specialty contractors into a chain reaction of crises. In addition, a structure is taking hold in which the order gap is widening and profitability is shrinking due to rising construction costs. For mechanical equipment, which is投入 in the later stages of a project, it is common for payment collection to be delayed even after work is completed if the funds of the prime contractor or developer dry up, the industry said.
According to the Construction Industry Knowledge Information System, 2,948 specialty contractors closed this year. That amounts to an average of eight specialty contractors shutting down per day.