Kumho Construction Q1 Operating Profit 1.5 Billion KRW... 70% Decrease YoY
Kolon Global Also Sees 93% Drop in Operating Profit Compared to Last Year
Consecutive New Orders in Q1, but Limited Impact
"Raw Material and Labor Cost Increases Becoming More Evident This Year"
The profitability of mid-sized construction companies is deteriorating due to rising raw material costs and labor expenses at construction sites. Despite a series of new orders in the first quarter of this year, operating profit significantly decreased, and net profit shrank as interest expenses grew due to high interest rates.
According to the Financial Supervisory Service's electronic disclosure system on the 21st, Kumho Construction's operating profit in the first quarter of this year was 1.5 billion KRW, down 70% compared to the same period last year. Sales in the first quarter were 494.5 billion KRW, a 4.4% decrease from a year earlier. Compared to the previous quarter, operating profit and sales fell by 70% and 19.2%, respectively.
Kumho Construction succeeded in securing new orders worth 388.7 billion KRW in the first quarter. These included the 'Gongju Natural Gas Power Plant Construction Project (total contract amount 224.2 billion KRW)' in January and the 'Gangneung Hoisan-dong Apartment Construction Project (90.1 billion KRW)' in February. Nevertheless, operating profit declined, and the effect of expanding orders was not significantly realized.
Another mid-sized construction company, Kolon Global, also saw its operating profit decline. It dropped 93.2% from 13.4 billion KRW in the first quarter of last year to 0.9 billion KRW in the same period this year. Despite a 19.7% increase in sales to 702.5 billion KRW in the first quarter, operating profit sharply decreased.
The industry analyzed that the impact of rising raw material prices and labor costs is reflected in this year's performance. A Kolon Global official explained, "Raw material prices have been continuously rising, significantly increasing the cost ratio." A representative from another mid-sized construction company said, "The surge in construction costs that began in the second half of last year has gradually appeared and is becoming more concrete this year," adding, "From this year, companies are taking a more conservative approach to orders, leading to an overall decrease in sales, and they are expected to pay more attention to defending operating profit margins."
Net profit also showed a downward trend. Kumho Construction's net profit in the first quarter was -1.9 billion KRW, a sharp decline from 5.1 billion KRW in the same period last year. Kolon Global's net profit fell from 20.6 billion KRW to -16.6 billion KRW during the same period, and Hanshin Engineering & Construction's dropped from 2.6 billion KRW to 1 billion KRW. Another mid-sized construction company official said, "The increase in financial costs due to rising corporate loan interest rates has impacted net profit."
However, the industry expects that the steep decline in performance will not last long. A Kolon Global official stated, "We secured new orders worth 1.5 trillion KRW in the non-residential sector, including the Korean Air Maintenance Factory (340.1 billion KRW) and the Jeongeup Biomass Plant (149.6 billion KRW), and with rapid progress in construction, we expect a recovery in performance." A Hanshin Engineering & Construction official also said, "We anticipate profitability improvement due to a decrease in cost ratio and progress in our own construction projects."
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