Samsung Engineering and SK E&C have seen their financial soundness deteriorate in recent years due to their lackluster business performance in the overseas market, according to reports from the stock brokerage sector.
The two conglomerate-based builders are suffering waning profitability and high debt-to-equity ratios, while some observers predict they could also gain from the coming bounce back in South Korea’s property market and construction industry.
Samsung Engineering, in a regulatory filing Monday, said its sales came to 1.77 trillion won ($1.65 billion) during the first quarter of 2015, down about 20 percent from the same period last year. This marked the lowest first-quarter sales in five years after the firm reported 1.08 trillion won sales in 2010.
Samsung Engineering CEO Park Choong-heum and SK E&C CEO Cho Ki-haeng
Its operating profit and net profit fell by 29.5 percent and 51.8 percent, respectively, to post 21.6 billion won and 12.1 billion won.
The company’s weaker performance was somewhat attributable to a slump in orders from foreign markets. The overseas demand for Samsung Engineering, which reached 13 trillion won in 2012, plunged to 6.2 trillion won in 2013 and 6.3 trillion won in 2014.
“As its overseas orders stayed below sales for the second consecutive year, (the builder) is projected to see a slowdown in growth until next year,” said an analyst from Hana Daetoo Securities.
The company is also reportedly incurring losses in some markets, including Saudi Arabia, in the wake of the slower-than-expected rates of construction progress in its projects.
Further, its debt-to-equity ratio hovered at a dangerous 545 percent at the end of 2014, recording minimal improvement from 554 percent the year before.
SK E&C, which saw its debt-to-equity ratio come to 331.9 percent in 2014, posted a deficit for the second consecutive year. Hit by overseas losses, it reported a net loss of 493 billion won in 2013 and 177.7 billion won in 2014.
Some insiders raised the possibility that SK E&C may consider selling some underperforming business units in a bid to secure liquidity. The builder has reportedly struggled to issue corporate bonds due to its weak financial soundness.
Korea Investors Service, a major assessment firm, recently downgraded the credit rating outlooks for Samsung Engineering and SK E&C from “stable” to “negative.”
Meanwhile, some claimed that weaker profitability has been unavoidable for the entire building industry, not just for the two players.
Three other builders also saw their KIS ratings inch down by one notch, respectively. GS E&C was demoted from A+ to A, KCC Engineering & Construction from A to A- and Hanshin Engineering & Construction from BBB to BBB-.
By Kim Yon-se (kys@heraldcorp.com)