Construction Equipment Industry Faces Q1 Earnings Nightmare Due to COVID-19... "Improvement Expected Only in Second Half"

[Asia Economy Reporter Ki-min Lee] The nightmare of the first-quarter performance in the construction machinery industry caused by the novel coronavirus infection (COVID-19) has become a reality.

According to the construction machinery industry on the 1st, Doosan Infracore and Hyundai Construction Equipment's operating profits this year decreased by 27.6% and 82.9%, respectively, compared to the first quarter of last year.

Doosan Infracore recorded consolidated sales of 2.0093 trillion KRW and operating profit of 181 billion KRW in the first quarter of this year. In particular, Heavy (construction equipment) sales and operating profit, excluding Bobcat and engines, were 826.5 billion KRW and 73.8 billion KRW, respectively. This represents a 17.4% decrease in sales and a 37.3% decrease in operating profit compared to the same period last year.

Hyundai Construction Equipment also recorded consolidated sales of 636.3 billion KRW and operating profit of 10.7 billion KRW in the first quarter of this year. Sales decreased by 20.3% compared to the same period last year.

At the beginning of this year, as the spread of COVID-19 froze the construction market in China, it is analyzed that both companies suffered considerable damage to their performance. Last year, sales in China accounted for more than 20% of the total for both companies, making it a major market.

From January to February this year, as COVID-19 spread throughout China, the authorities implemented strict measures such as movement restrictions and factory closures. During the same period, demand for construction machinery such as excavators in China plummeted by more than 50%, resulting in Doosan Infracore and Hyundai Construction Equipment's first-quarter sales in China decreasing by 33.3% and 39.3%, respectively, compared to the same period last year.

As the number of COVID-19 patients in China sharply declined starting in March, infrastructure investment began in earnest, and demand for construction machinery has shown a V-turn (rebound after slump) trend since March. Furthermore, from April, the market atmosphere is recovering to levels above those of last year. The China Construction Machinery Association (CCMA) predicted that the excavator market size this year will be similar to last year's level of 210,000 units.

However, it is expected that performance improvement for construction machinery companies will not be easy in the second quarter either. COVID-19 cases have surged since March in emerging markets such as North America, Europe, and India. North America and Europe are expected to experience economic contraction exceeding the level of the 2009 global financial crisis, and normal infrastructure construction activities are difficult. The industry also expects demand to decline until the second quarter in emerging markets such as India due to government movement restrictions and shutdown policies.

If the number of COVID-19 cases in each country peaks in the second quarter and enters a full recovery phase from the third quarter, demand for construction machinery is expected to rise again. Regarding the North American and European markets, Doosan Infracore stated, "We expect gradual recovery after the third quarter." Hyundai Construction Equipment also forecasted, "Market recovery in the second half of the year is expected depending on the progress of COVID-19 and country-specific stimulus policies after the third quarter, but uncertainties remain."