'Performance Freeze' Construction Companies, Yet Non-Building Sectors Smiled

Housing Market Slump Spurs 'Portfolio Diversification' Success
Q3 Dongbu Plant Sales Reach 219.2 Billion Won...130% Increase
Kolon, Lotte, SK Eco, and Others Also See Growth in Environment, Plant, and Civil Engineering Sectors

The construction industry faced a severe 'performance cold wave' in the third quarter of this year, but made strides in non-building sectors such as civil engineering and plants. Analysts say the effect of portfolio diversification led to increased sales. However, due to the continued housing market slump caused by high interest rates and rising raw material prices, the industry was unable to secure substantial profits.

Non-residential Sales Increase Significantly

According to the Electronic Disclosure System (DART) on the 21st, Dongbu Construction recorded sales of 219.2 billion KRW (combined public and private) in the plant construction sector in the third quarter of this year. This is a 130% increase compared to 95.4 billion KRW in the third quarter of last year. The proportion of total sales also rose by 10.2 percentage points during the same period, from 6.9% to 17.1%. A similar trend was observed in the civil engineering sector. Dongbu Construction's civil engineering sales in the third quarter of this year reached 305.2 billion KRW, a 41% increase from 215.7 billion KRW in the same period last year.

Expanding new businesses had a significant impact on boosting performance. Dongbu Construction identified the plant industry as a new business to cultivate in 2021. Then, earlier this year, it upgraded the Industrial Plant Team, which was previously a 'team' unit, to the 'Plant Business Division' to strengthen its efforts. With the expansion of plant orders this year, the volume of contracts increased and performance was secured. This contrasts with the decline in housing business sales. Dongbu Construction's architectural construction (including housing) performance in the third quarter of this year was 565.7 billion KRW, down 40% from 942.3 billion KRW a year earlier. Its share of total sales also shrank from 67% to 44% during the same period.

A construction industry official explained, "Since we are unable to secure housing orders, the proportion of plants and civil engineering inevitably increases," adding, "This year, public orders from Korea Railroad Corporation (KORAIL) and Korea Expressway Corporation increased, which improved sales in related sectors."

This rise in non-building sectors is evident across the construction industry. Kolon Global's environmental and plant sector sales increased by 50%, from 52.8 billion KRW in the third quarter of last year to 79.3 billion KRW this year. In the civil engineering sector, sales rose from 86.6 billion KRW to 89.6 billion KRW during the same period. A Kolon Global representative explained, "Sales increased as we secured many orders not only in the wind power business but also in infrastructure such as roads and tunnels, and civil engineering."

Lotte Construction's plant sector sales grew by more than 200 billion KRW, from 692.7 billion KRW in the third quarter of last year to 903.3 billion KRW this year. Civil engineering sales also increased from 324.8 billion KRW to 436.1 billion KRW. SK Ecoplant's cumulative sales in the environmental business from the first to third quarters reached 1.1831 trillion KRW, a 27.7% increase compared to 926.3 billion KRW in the same period last year.

Hard to Avoid Operating Losses

Although companies are seeking new opportunities by strengthening non-residential businesses, securing profits remains difficult. Many construction companies recorded operating losses in the third quarter of this year. Dongbu Construction turned to a loss with an operating loss of 80.6 billion KRW in the third quarter of this year, compared to an operating profit of 10.6 billion KRW in the same period last year. Net loss also widened from -16.8 billion KRW in the third quarter last year to -85.1 billion KRW this year. Kolon Global recorded an operating loss of 21.1 billion KRW in the third quarter, switching to a loss compared to the previous year.