|LG Hausys CEO designate Kang Gye-woong, left, and KCC Chairman Chung Mong-jin.|
By Nam Hyun-woo
LG Hausys, KCC and other construction material firms are reeling from the protracted domestic housing market slowdown. As the outlook for the construction market continues to remain grim for this year, calls are growing for housing regulations to be eased to avoid a hard landing.
According to LG Hausys, the housing material firm logged 3.2 billion won ($2.7 million) operating profit in the fourth quarter of last year, down 80.9 percent from a year earlier. Sales also suffered a 3.9 percent decline to 805 billion won
In its earnings report, LG Hausys attributed the plunge to "the protracted decline in the construction of new homes and commercial facilities following the government's enhanced regulations on the housing market."
KCC also posted disappointing numbers. Last year, KCC's operating profit fell 33.5 percent year-on-year to 133.6 billion won, and sales dropped 11.7 percent to 2.72 trillion won.
In the fourth quarter alone, the company logged 701.9 billion won in sales and 17.3 billion won operating profit, down 6.4 percent and 7.9 percent respectively.
The weak earnings are in line with the protracted construction slowdown following the Moon Jae-in government's hard-line policies to control home prices.
According to the Construction Association of Korea, total orders for domestic construction firms in Korea 2016 stood at 164.88 trillion won, but this fell to 160.5 trillion won in 2017 and 154.5 trillion won in 2018. Accumulated orders from January to September last year stood at 106.7 trillion won, down 0.5 percent from a year earlier.
Ready-mixed concrete and cement firms are also suffering. Sales for Eugene Corp., one of Korea's leading ready-mixed concrete firms, January-September sales declined to 1.08 trillion from January-September ― down 25.5 percent from a year earlier ― and Sampyo Cement suffered a 24.6 percent sales slump during the same period.
This year's outlook remains grim. According to the Construction & Economy Research Institute of Korea (CERIK), construction orders for this year are expected to remain at 140 trillion won, the lowest since 2014.
To avoid a hard landing from the construction downturn, the government has increased this year's budget for social overhead capital (SOC) investment by 17.6 percent to 23.2 trillion won to buoy public construction. However, questions remain over its effectiveness.
"Including the increased SOC budget, the government is employing massive public construction projects," CERIK researcher Lee Hong-il said. "However, public construction accounts for nearly 30 percent of the total construction market of Korea. It is therefore difficult to turn around the slowdown through public projects."
Against this backdrop, LG Hausys and KCC are busy seeking strategic changes in their deteriorating main businesses.
KCC, which acquired U.S. silicone maker Momentive in 2018, has been seeking to diversify its portfolio by tapping into semiconductor material and other fine chemical businesses. Last month, KCC spun off a glass-based construction material unit KCC Glass.
LG Hausys is focusing on advanced housing materials. In its earnings report, LG Hausys said it would focus on value-added products, including eco-friendly and high-end housing materials, by expanding its manufacturing facilities.