[비즈한국] As the construction industry continues its "arduous march" due to rising costs driven by inflation, the business performances of South Korea's two largest construction firms, Samsung C&T028260 and Hyundai E&C000720, have declined compared to the previous year. Samsung C&T’s construction division saw its revenue and operating profit fall by approximately 3% year-on-year, while Hyundai E&C posted its first operating loss in 23 years after reflecting overseas project construction costs in a single lump sum. Both companies have announced strategies to focus on selective bidding for high-profit projects and stringent cost management this year.
The two top-tier construction firms in terms of construction capability, Samsung C&T and Hyundai E&C, announced their 2024 annual financial results on the 22nd.
Samsung C&T’s construction division, ranked number one in construction capability, saw both revenue and operating profit decline by about 3% last year compared to the previous year. The 2024 revenue was 18.655 trillion won, a decrease of 655 billion won (3.4%) year-on-year, and operating profit was 1.01 trillion won, down by approximately 33 billion won (3.2%) during the same period. However, the operating profit margin remained steady at 5.4%, the same level as the previous year.
The decline in Samsung C&T's performance is analyzed to be primarily due to a reduction in large-scale legacy projects. High-tech projects ordered by Samsung Electronics005930, such as semiconductor plants in Pyeongtaek and Taylor, USA, as well as large-scale plant projects like nuclear power plants in the UAE and LNG export terminal tanks, have entered the final stages of construction this year, driving the drop in revenue. In particular, the high-tech volume, which accounts for the largest portion of Samsung C&T’s construction revenue, is known to be more profitable than other construction projects.
Samsung C&T commented, "Although revenue and profit declined slightly compared to the previous year due to changes in the external environment, we have maintained solid performance based on a portfolio focused on profitability."
Hyundai E&C, ranked second in construction capability, recorded an operating loss last year for the first time in 23 years. While its 2024 revenue was 32.6944 trillion won—an increase of 3.043 trillion won (10.3%) from the previous year—its operating profit, which was 785.4 billion won in 2023, turned into a loss of 1.2209 trillion won last year. This is the first time Hyundai E&C has recorded an operating loss in 23 years, since 2001 (-386 billion won).
Hyundai E&C’s operating loss is the result of reflecting all risk factors from overseas projects onto its balance sheet—a so-called "Big Bath." In the fourth quarter of last year, Hyundai E&C estimated all future construction costs for sites such as the Balikpapan refinery upgrade project in Indonesia (Hyundai Engineering) and the Jafurah gas processing facility project in Saudi Arabia (Hyundai E&C, Hyundai Engineering) and reflected them in the construction costs. Furthermore, by also reflecting the construction costs of Hyundai Engineering’s domestic housing sites, the company incurred a massive operating loss.
Hyundai E&C stated, "(The loss) is attributed to temporary costs incurred in some overseas projects of connected subsidiaries. We plan to accelerate the normalization of profitability by re-examining our processes and strengthening project management."
The outlook for the two construction giants remains challenging this year. Samsung C&T projects its construction division revenue for this year to be 15.9 trillion won, a decrease of 2.8 trillion won (15%) compared to the previous year. Hyundai E&C also set its revenue forecast for this year at 30.3873 trillion won, a decrease of 2.3 trillion won (7%) from the previous year. However, the company plans to boost its operating performance, which turned to a loss last year due to one-time cost reflections, to 1.1828 trillion won (including 633.1 billion won from Hyundai Engineering) this year. Samsung C&T did not provide a separate operating profit forecast.
However, both companies have set aggressive order targets. Samsung C&T’s construction division has set a target of 18.8 trillion won for this year, an increase of 800 billion won (4%) over last year’s orders, while Hyundai E&C has set its target at 31.1412 trillion won, an increase of 613.1 billion won (2%) from the previous year. Samsung C&T plans to focus on selective bidding for plants (EPC, 9.9 trillion won) and housing (2 trillion won), while setting its high-tech order target—which usually accounts for the largest proportion of revenue—at 6.7 trillion won, 1.1 trillion won lower than the previous year. It is reported that Hyundai E&C also plans to focus on selectively bidding for highly profitable core projects and strengthening cost management.
A Samsung C&T official stated, "We expect a temporary decline in revenue as major high-tech and plant projects are completed and due to the timing difference in realizing revenue from new orders. However, as we are expanding orders focusing on new businesses, we expect performance to gradually improve as revenue from these projects begins to materialize in earnest during the second half of the year, and we anticipate a recovery to at least the previous year's level by next year."
A Hyundai E&C official added, "We will do our best to secure sustainable new growth engines with profitability as our top priority by expanding clean energy businesses—including large-scale nuclear power plants where we hold global competitiveness, small modular reactors (SMR), offshore wind, solar, and hydrogen projects—to respond to climate change and the explosive increase in energy consumption, while also working harder on developing new residential product concepts and innovating production technologies."