Securities Industry: "Operating Profit to Drop 80%"...Hyundai E&C Faces Earnings Shock from Another Subsidiary Crisis

Hyundai Engineering Hit Hard by Large-Scale Bond Calls,
Direct Impact on Consolidated Earnings
Securities Firms Forecast Third-Quarter Operating Profit to Plunge to 22 Billion Won
Last Year's Deficit, This Year's Accidents, and Overseas Setbacks.

The outlook for Hyundai Engineering & Construction's operating profit in the third quarter of this year is plummeting. As recently as August, forecasts were approaching 200 billion won, but they have now dropped to the 20 billion won range. Some even expect an approximately 80% year-on-year plunge. The resurgence of "subsidiary risk" is seen as a factor that will once again hinder Hyundai Engineering & Construction's performance.

According to financial information provider FnGuide on the 30th, Hyundai Motor Securities has projected Hyundai Engineering & Construction's third-quarter operating profit at 22 billion won. Just two months ago in August, Shin Young Securities had forecast 182 billion won, and positive predictions were dominant. Compared to the same period last year (114.3 billion won), this represents an 80% decrease. Hyundai Engineering & Construction is scheduled to announce its earnings on the 31st.

The "overseas risk" of its subsidiary Hyundai Engineering has surfaced, leading to a flood of reports projecting operating profit below 100 billion won. The average earnings forecast (consensus) by securities firms has dropped from around 180 billion won two months ago to 72.3 billion won.

Hyundai Engineering has recently faced bond calls totaling 220 billion won from projects in Poland and Malaysia. A bond call is a procedure in which the project owner demands payment of a performance guarantee from a financial institution, citing reasons such as construction delays or excessive additional cost requests by the contractor. There have been claims of 40 to 50 billion won from the combined cycle power plant in Malaysia and about 170 billion won from the petrochemical plant in Poland.

If the guarantee is actually paid, it will be reflected as a consolidated loss for Hyundai Engineering & Construction. The securities industry expects the loss from Poland to be reflected in the third quarter of this year, and the loss from Malaysia to be reflected in the fourth quarter. Shin Donghyun, a researcher at Hyundai Motor Securities, explained, "We have revised down our operating profit estimate based on Hyundai Engineering's bond call costs in Poland and increased domestic site safety management expenses," adding, "The cost scale has been estimated quite conservatively." In response, a Hyundai Engineering official stated, "Since some of the problems arose due to delayed construction payments by the project owner, we plan to take legal action against the owner."

In the securities industry, there is also a reaction that "it is difficult to understand the recurring subsidiary risk." Song Yurim, a researcher at Hanwha Investment & Securities, pointed out, "Even after Hyundai Engineering posted an unprecedented large-scale loss (about 1.2 trillion won) last year, cost issues continue to arise," and added, "Unless there is direct communication, it seems unlikely that trust will be restored." Negative developments at Hyundai Engineering are continuing this year as well. Following the bridge collapse on the Sejong-Anseong Expressway in February, which resulted in four deaths, the company is likely to face a business suspension soon. As a result, it has also suspended domestic housing project orders. Hyundai Engineering was also indirectly linked to the detention of workers at the Hyundai Motor Group-LG Energy Solution joint plant in Georgia, USA. As the contractor, Hyundai Engineering had already withdrawn its personnel at the time of the incident and avoided direct involvement, but concerns about the overseas business environment remain.

Meanwhile, among the five major construction companies, Samsung C&T's construction division was the first to announce its third-quarter results this year. On the 28th, it disclosed an operating profit of 111 billion won, down 125 billion won (53.0%) from last year (236 billion won). This decrease was due to the completion of large-scale projects, including high-tech projects, resulting in lower sales and operating profit. Hyundai Engineering & Construction and Daewoo Engineering & Construction are set to announce their results on the 31st, GS Engineering & Construction on November 4, and DL E&C on November 6.

All construction companies ranked 3rd to 5th in construction capability evaluation are expected to show improved results. This is the outcome of a selective order strategy focused on profitability rather than scale. Daewoo Engineering & Construction is projected to record an operating profit of 99.9 billion won (+60.3% year-on-year) due to high-margin overseas projects, while GS Engineering & Construction is expected to post 100.6 billion won (+23% year-on-year) thanks to stabilized cost ratios. DL E&C is expected to achieve about 117.6 billion won in operating profit due to improved cost ratios in the housing division, a figure more than 40% higher than last year.

This content was produced with the assistance of AI translation services.