As the war between Israel and the Palestinian armed group Hamas shows signs of spreading throughout the Middle East, the domestic construction industry is losing sleep again.
In particular, there are concerns that the second Middle East boom may be in vain as Saudi Arabia, the main market for our construction companies, sides with Palestine.
Let’s talk in detail with the reporter. Reporter Bang Seo-hoo of the Real Estate Department is here.
Reporter Bang, what is happening now. How is the construction industry reacting?
Contrary to the anxiety of investors, companies operating in the Middle East region are watching relatively calmly.
First of all, the places where war is ongoing are Israel and Palestine, and the places where our construction companies are pursuing projects are neighboring countries such as Saudi Arabia and Iraq.
Therefore, it is understood that there are no immediate plans to stop the business or withdraw from the site.
In fact, one of the companies whose stock prices fluctuated significantly when the war broke out was construction project management ( PM ) . This is Hanmi Global, a company specializing in PM .
Until next year, we provided advisory services in various fields such as business management, transportation, and environment related to Saudi Neom City, and as a result, we recorded the highest sales ever in the first half of this year.
We have been told locally that there has been no damage so far and that there are no negative situations that are cause for concern.
But didn’t Saudi Crown Prince Bin Salman, who holds the money in Neom City, declare support for Palestine?
The amount of orders alone is astronomical, so not only our construction companies but also the government are making every effort to win the work. But it
doesn’t seem like there will be any impact from this war, right?
That’s right. As a result, bin Salman came forward to support Palestine at a time when the United States was openly providing various types of support to Israel.
If the relationship between the United States and Saudi Arabia sours, there is a possibility that some kind of embargo will be imposed on Saudi Arabia, just as it recently froze the funds of Iran, which is accused of being behind Hamas.
Therefore, the calculations are bound to become complicated for our companies, which are bound by a security alliance with the United States and must make money in Saudi Arabia.
Currently, in addition to Hanmi Global, Samsung C&T, along with Hyundai Engineering & Construction, has received an order for the first section of Neom City’s ‘The Line’ underground tunnel project and is currently constructing it, and is planning to receive additional orders.
And last June, Hyundai Engineering & Construction also won a contract for construction of Saudi Amiral Petrochemical Complex. The contract size is about 6.5 trillion won, which is the largest construction contract ever won by a Korean company in Saudi Arabia.
Thanks to this momentum, the cumulative overseas construction orders received by domestic companies as of the third quarter of this year reached USD 23.5 billion, the highest since 2015 (USD 34.5 billion), or approximately KRW 31.7 trillion in Korean money.
In the second half of the year, Korean companies are expected to receive orders totaling more than 5 trillion won, including tunnels and gas fields.
If this situation does not spread to neighboring countries and ends up being a local conflict, the Middle East business, which is the main business of our companies, will not be affected. However, the
analysis is that this may depend on how long the situation lasts and whether the impact expands to neighboring countries.
To summarize, there is no immediate impact, but it is enough to keep a close eye on it.
In the end, the uncertainty you hate most in the stock market has increased, right?
That’s right. Although there has been no damage so far due to this incident, there is a greater possibility that new business orders, including those in the Middle East, will be delayed in the future.
It is known that some projects are already experiencing delays in ordering and announcing bid results.
After the Russia-Ukraine incident, the cost burden increased due to a surge in atomic ash prices, high interest rates, and rising oil prices, and construction companies turned to overseas orders instead of the domestic housing market.
There are concerns that if the expansion continues, it may be difficult to achieve the government’s target of $35 billion in overseas orders this year.
So is it only going to be this difficult overseas? Korea, where construction companies have nothing left even after selling their houses, could become even more gloomy.
The Center for International Finance predicted in a recent report that if the war prolongs, international oil prices could soar to up to $150 per barrel.
Some say that if Iran, which is accused of being behind Hamas, blocks the Strait of Hormuz, 20% of global crude oil supply could be hit.
As oil prices rise, it also affects construction companies’ material transportation costs.
As much as 40% of cement alone is transported by land, so if transportation costs rise, it will naturally be reflected in the construction cost and in the sale price.
However, the cost burden has also increased스포츠토토, so there is nothing left to sell at a high price, and then construction companies will not build houses again.
The already reduced number of construction starts will decrease further, which will inevitably lead to instability in the housing market.
We are about to announce our third quarter earnings, right? How about construction companies?
In one word, it is difficult.
It is predicted that most listed construction companies will find it difficult to improve profitability as high raw material prices and the resulting cost burden continue.
In fact , among the four construction companies – Hyundai E&C, Daewoo E&C, GS E&C, and DL E&C – Hyundai E&C is believed to be the only one whose operating profit estimate for the third quarter is growing compared to the same period last year.
In the case of Hyundai Engineering & Construction, it has managed to defend itself by lowering its housing business proportion to 50%, while
other construction companies, especially Daewoo Engineering & Construction and DL E&C, are expected to see a noticeable deterioration in profitability as their housing business proportion exceeds 60%.
During the same period, operating profit is expected to decrease by 15% and 19%, respectively.
The problem is that this third quarter performance was also the result of sluggish domestic business rather than overseas.
In the future, if overseas performance is affected by the international situation, the word ‘bottom’ may become meaningless when discussing the performance of construction companies for the time being.