Major South Korean construction companies significantly improved profitability last year through rigorous cost management and profit-focused business restructuring, but escalating Middle East tensions now threaten to reverse those gains.
According to data from the Financial Supervisory Service's electronic disclosure system released Tuesday, the seven largest listed construction firms by construction capacity ranking—Samsung C&T, Hyundai Engineering & Construction, Daewoo E&C, GS Engineering & Construction, DL E&C, Samsung E&A, and HDC Hyundai Development—posted combined operating profit of 2.24 trillion won ($1.56 billion), up 20.8% year-over-year. Average operating margin improved to 2.6% from 1.9%.
Mid-sized builders staged an even more dramatic turnaround. Seven mid-tier firms—Kyeryong, Kumho, Taeyoung, Hanshin, HL D&I Halla, Dongbu, and KCC Construction—reported combined operating profit of 574.2 billion won, surging 492% from 97 billion won the previous year. Net profit swung to 436.5 billion won from a loss of 167.3 billion won.
The recovery stemmed from normalized cost ratios. After recording massive losses in 2024 due to soaring raw material prices and high interest rates, these companies strengthened on-site cost controls and shifted to selective bidding on higher-margin projects. Kumho E&C and Dongbu Construction lowered their cost-to-sales ratios by 10 to 11 percentage points to between 87% and 93%.
Industry observers had anticipated further gains this year. Seoul's urban redevelopment pipeline—spanning prime districts including Apgujeong, Yeouido, Mokdong, and Seongsu—is expected to reach 80 trillion won. Globally, AI-driven demand is fueling large-scale nuclear power projects, with Korean firms competing for contracts in the Czech Republic and Romania.
However, U.S. and Israeli airstrikes on Iran on April 28 have complicated the outlook. Iran's blockade of the Strait of Hormuz, a critical global energy chokepoint, has driven up oil prices and shipping rates—key inputs for construction materials including asphalt, cement, and steel.
Brent crude closed at $81.40 per barrel on London's ICE Futures Exchange on Thursday, climbing above $83 on Friday—a gain of more than 16% since April 27. Global investment banks including JP Morgan project prices could reach $100 to $200 per barrel if the blockade persists. Shipping rates have tripled compared to pre-conflict levels, squeezing large contractors with significant overseas operations.
According to the Korea Construction Industry Institute, a 60% rise in oil prices would increase building production costs by 1.5% and general civil engineering costs by 3%.
"War raises the risk of project delays in the Middle East and creates uncertainty around future contract schedules," said Park Se-ra, an analyst at Shinyoung Securities. "If energy supply disruptions persist, concerns about an economic slowdown could spread, potentially affecting domestically focused builders in the housing sector as well."
Results among major firms were mixed. Hyundai E&C, GS E&C, DL E&C, and HDC Hyundai Development saw profit recoveries. Samsung C&T and Samsung E&A faced declines as high-margin projects concluded, while Daewoo E&C preemptively wrote down approximately 800 billion won in potential losses from unsold provincial housing inventory.