Group constructs a brighter scenario

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Group constructs a brighter scenario

Huge construction company losses on overseas projects have grabbed headlines lately, but the International Contractors Association of Korea (ICAK) says other major builders are doing well.

The ICAK, a business group supporting local builders’ overseas construction projects, said Thursday that while it understands peoples’ doubts, the well-publicized losses don’t accurately reflect the big picture.

“We estimate most top 10 builders will post a profit in the first quarter,” the ICAK said in a statement. “For the past three years, these major companies’ annual return on sales was 4.4 percent, which shows they have been staying in the black.”

Although some companies have yet to reveal first-quarter earnings, others have reported results that exceed expectations.

Hyundai Engineering & Construction, the nation’s largest builder under Hyundai Motor Group, said yesterday its operating profits jumped 21.9 percent year-on-year to 178.6 billion won ($161 million) from January through March, while sales reached 2.8 trillion won, a 5.8 percent increase. Its net profit also climbed nearly 20 percent to 149.7 billion won compared to a year ago.

Daelim Industrial, the sixth-largest builder, also said sales jumped 22.6 percent year-on-year to reach 2.51 trillion won, while operating profit soared 30.9 percent to 123.9 billion won.

Daewoo Engineering & Construction on Wednesday posted a 3 percent year-on-year decrease in first-quarter operating profits to 109.3 billion won, but analysts said the nation’s third-largest builder’s first-quarter result was not worrisome. They stressed the company’s balanced business portfolio and its expansion into Africa where there is less competition.

The construction industry expects more companies with promising results that hopefully will erase the nightmare of recent “earning shock” after reports by GS Engineering & Construction and Samsung Engineering that they lost money on overseas construction projects due to increasing costs.

GS E&C, the nation’s fourth-largest builder, posted an operating loss of 535.5 billion won in the first quarter, while Samsung Engineering reported an operating loss of 219.8 billion, its first loss in a decade.

The impact of both companies’ poor performance was reflected in the stock market. According to financial firms, the average stock value of Korean construction companies plunged nearly 8 percent over the past two weeks.

The issue also has raised red flags over “cannibalizing” competition among Korean companies in bidding for overseas projects.

STX Heavy Industries reportedly sent a letter to the Blue House recently, claiming Samsung C&T hampered its effort to win Australia’s Roy Hill iron ore project last month by submitting a price so low that it could be considered dumping.

According to sources, Samsung C&T secured the project last month at $5.7 billion, $600 million lower than the bid from STX, which formed a consortium with Posco E&C. Samsung C&T, which posted a 25 percent year-on-year drop in first-quarter operating profits, said the bidding was fair and its price was the result of proper analysis.

Nonetheless, the government and ICAK said on Thursday they plan to establish a private organization to monitor overseas bidding.

By Joo Kyung-don []
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