Top 5 Builders Fill Their "Warehouses" and Improve Cost Ratios... Clear Shift Away from Housing [Construction 3Q Report Card]

DL E&C and Samsung C&T See Order Backlogs Surge Over 25%
Average Cost Ratio of Top 5 Builders Improves by 2 Percentage Points
Proportion of Building Sales Drops Across the Board... Responding to Housing Market Risks
Next Year, Expanded Group Investments by Samsung, SK, and Others... Affiliate Orders a Boon for Major Firms
High Exchange Rate and Rising Material Costs Pose Risks... Concerns Mount for Small and Medium-Sized Builders

The third-quarter performance trends of South Korea's top five construction companies this year were characterized by an increase in order backlogs, a decline in cost ratios, and a reduced proportion of building (including residential) sales. This reflects an ongoing structural improvement, with both risk reduction and profitability enhancement occurring simultaneously. Looking ahead to next year, there are expectations that expanded orders from affiliates, particularly among large companies, will drive performance, while concerns have also been raised that a high exchange rate could pose a significant challenge.

The captive volume of large construction companies is expected to expand significantly next year. The photo shows Samsung Electronics Pyeongtaek Campus in the Godeok Industrial Complex, Pyeongtaek. Photo by Samsung Electronics.

According to the third-quarter reports recently disclosed by each company on the Financial Supervisory Service's electronic disclosure system on November 18, the cumulative order backlog of the top five construction companies by construction capability assessment-Samsung C&T Construction Division, Hyundai Engineering & Construction, DL E&C, Daewoo Engineering & Construction, and GS Engineering & Construction-reached a total of 266.3 trillion won as of the third quarter of this year. This represents a 14.3% increase (33.3 trillion won) from 233 trillion won in the same period last year. The order backlog serves as the foundational volume that will be converted into future sales, effectively acting as a "warehouse securing future performance."

DL E&C posted the highest growth rate, with its order backlog increasing by 27.2% from 21.3 trillion won to 27.1 trillion won. Samsung C&T followed, rising by 25.8% (from 23.6 trillion won to 29.7 trillion won). GS Engineering & Construction (13.9%), Hyundai Engineering & Construction (11.0%), and Daewoo Engineering & Construction (9.0%) also saw increases in their order backlogs.

The cost ratio-a key indicator of profitability, calculated as the ratio of cost to sales-also improved across the board. This was largely due to a significant reduction in the proportion of low-margin projects that commenced during the period of soaring construction costs in 2021 and 2022. Notably, GS Engineering & Construction showed the most prominent improvement, with its cost ratio dropping by 3.9 percentage points year-on-year to 87.9%. Lee Seonil, a researcher at BNK Securities, assessed that "GS Engineering & Construction has normalized profitability across all business segments, including building and residential."

DL E&C recorded a cost ratio of 86.5%, down 2.5 percentage points from the same period last year. Daewoo Engineering & Construction (91.3%, down 2.1 percentage points), Samsung C&T (88.1%, down 0.9 percentage points), and Hyundai Engineering & Construction (95.0%, down 0.8 percentage points) also succeeded in improving their cost ratios. The average cost ratio of the top five construction companies fell from 91.8% in the third quarter of last year to 89.7% in the third quarter of this year.

The proportion of residential sales also declined. All four companies, except for Daewoo Engineering & Construction, saw a decrease in the proportion of building (including residential) sales. Bae Seho, a researcher at iM Securities, analyzed that this was due to poor market conditions, heightened risks of serious accidents in the construction industry, and the ongoing trend of strengthening real estate regulations.

Samsung C&T's proportion of building sales dropped by 12.3 percentage points year-on-year to 66.6%. GS Engineering & Construction's figure fell by 12.1 percentage points to 63.4%. Hyundai Engineering & Construction (55.6%, down 9.6 percentage points) and DL E&C (52.3%, down 7.2 percentage points) also saw declines. In contrast, Daewoo Engineering & Construction was the only company among the five to see a rise in this segment, with its proportion of building sales increasing by 0.7 percentage points to 65.9% during the same period.

The third-quarter earnings reports represent the final official performance announcement for this year. Regarding next year's outlook, the expansion of affiliate projects (captive orders) is emerging as a major positive factor. Park Sera, a researcher at Shin Young Securities, noted, "After the Korea-US tariff negotiations, major groups such as Samsung, Hyundai Motor, and SK announced large-scale domestic investment plans, and the delayed construction of Samsung Electronics' Pyeongtaek Plant 5 (P5) has also commenced in earnest." She added, "Major large companies such as Samsung C&T and Samsung Engineering & Architecture are expected to see an increase in high-tech orders." With the anticipated expansion of group construction volumes, construction companies affiliated with large conglomerates are expected to benefit. SK Ecoplant, which is preparing for an initial public offering (IPO), is also cited as a representative beneficiary.

On the other hand, the high exchange rate is emerging as a potential risk. Although the construction industry is generally less affected by exchange rate fluctuations compared to other sectors, rising raw material prices could lead to higher construction costs and sales prices. An official from a major construction company explained, "In the case of material contracts, they are often made on an annual basis, so there is no immediate significant impact. However, if the high exchange rate persists, next year's construction costs could rise further compared to current trends." He added, "Large construction companies are less affected since they have many overseas projects and can hedge against currency risks, but small and medium-sized construction companies that cannot do so may face difficulties."