No inflation........
Hyundai Engineering Net Falls on Steel, Cement Costs
By Kyunghee Park
Oct. 30 (Bloomberg) -- Hyundai Engineering & Construction Co., South Korea's biggest builder by market value, said third- quarter profit fell 44 percent, the fourth quarterly decline, on higher steel and cement costs.
Net income in the three months ended Sept. 30 fell to 48.8 billion won ($54 million), from 87.6 billion won a year earlier, the Seoul-based company said in a regulatory filing today. Sales rose 5.7 percent to 1.37 trillion won.
Hyundai Engineering had to pay more to buy steel products and cement for the increased construction projects it won. Steelmakers are paying 9.5 percent more for a key ingredient used in the metal this year as rising demand from China, the world's largest user, pushed the raw material to a record.
``Higher costs are eating into Hyundai Engineering's margins,'' said Cho Joo Hyoung, an analyst at Hana Daetoo Securities Co. in Seoul, who has ``trading buy'' on the stock. ``Earnings should improve next year as it starts work on projects it received this year.''
Hyundai Engineering's new contracts at home and abroad increased 34 percent from a year earlier to 9.99 trillion won at the end of the third quarter, Hyundai Engineering said.
Operating profit, or sales minus the cost of goods sold and administrative expenses, dropped 15 percent from a year earlier to 90 billion won in the third quarter.
Shares of Hyundai Engineering slid 4.8 percent to 89,000 won as of 10:17 a.m. in Seoul, after falling as much as 5 percent. The stock has advanced 56 percent this year, compared with a 43 percent climb in South Korea's Kospi index.
Steel Prices
Posco, South Korea's biggest steelmaker, raised the price on hot-rolled coils 2 percent to 510,000 won a metric ton in August. It also increased the price of plates used in construction by 7.8 percent to 690,000 won a ton. Chinese hot-rolled coil, a regional benchmark, gained 20 percent in the quarter, analysts said.
Hyundai Engineering also cited the absence of tax benefits in the quarter for the decline in net income.
South Korean companies under a debt management program receive tax reimbursements if they make profit for three straight years. Creditors ended the program for Hyundai Engineering in May last year after the builder repaid 850 billion won.
The construction company was managed by creditors since October 2001 when it struggled with losses from unpaid bills for construction of pipelines and projects including those in Iraq and Libya.
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