Big GS E&C loss rattles construction companies

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Big GS E&C loss rattles construction companies

GS Engineering & Construction’s first-quarter report of a 386 billion won ($342 million) net loss due to lower margins for overseas projects has sent shock waves through the construction industry.

The nation’s fourth-largest builder, under GS Group, made the announcement on Wednesday after a regulatory filing. In the first quarter of 2012, GS E&C had 74.6 billion won in profits.

According to the company, sales fell 13.49 percent year-on-year to 1.82 trillion won in the January-March period, while its operating loss was 535.4 billion won.

GS E&C blamed low-profit overseas contracts for the poor earnings performance, saying its operating loss could reach 798.8 billion won for the year.

But it is working to secure 12 trillion won in overseas projects and expects to return to profitability starting next year.

After GS E&C’s announcement, analysts and investment firms were busy lowering stock value and performance estimates. They also warned that other Korean builders that won overseas projects in recent years may suffer from lower prices and decreasing margins just like GS E&C, citing increased competition since 2010.

As an example, companies like Samsung Engineering, which marked its best year ever in 2012 with 11.4 trillion won in sales and an operating profit of 730 billion won, also faced an internal audit after its overseas orders turned out to be hurting profitability.

The impact was apparent in the stock market yesterday as the share value of local construction firms plunged.

GS E&C sank 14.98 percent to 42,000 won, its lowest close since the 2008 financial crisis. More than 370 billion won of its market cap disappeared.

Korea’s largest builder, Hyundai E&C, fell 5.18 percent to 58,600 won, while No.3 player Daewoo E&C dropped 5.5 percent to 8,090 won. Samsung Engineering lost 10.71 percent to 100,000 won, while Daelim Industrial shed 9.3 percent to 78,000 won.

By Joo Kyung-don []

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