Hyundai Engineering incurred an operating loss of 1.22 trillion won on a consolidated basis last year as it implemented a 'Big Bath' to reflect increased costs from overseas business sites all at once.
Hyundai Engineering actively pursued overseas orders, ranking among the top three domestic construction companies in overseas construction orders over the past three years. According to the order results from 2022 to last year, Samsung C&T was at 17.9%, Samsung E&A at 17.2%, Hyundai Engineering at 15.6%, Hyundai E&C at 9.2%, and GS Engineering and Construction at 4.8%.
Although the order performance was favorable, losses were accumulating each year. Analyzing Hyundai Engineering's unbilled construction receivables, which it had yet to bill to clients, and accounts receivable, which it had billed but had not collected payment for, reveals a worsening financial situation.
Hyundai Engineering's unbilled construction receivables and accounts receivable in 2018 amounted to 543 billion won and 878.6 billion won on a consolidated basis. In 2019, it reduced the unbilled construction receivables and accounts receivable to 380.9 billion won and 866.4 billion won, respectively, while maintaining a favorable level of 430.1 billion won and 706.2 billion won in 2020.
However, when construction costs rose, logistics costs skyrocketed, and delays occurred in overseas sites that Hyundai Engineering secured before the spread of COVID-19, the company failed to narrow the gap with clients over the increase in construction costs.
After increasing unbilled construction receivables and accounts receivable to 989 billion won and 800.5 billion won in 2021, these figures surpassed 1 trillion won starting in 2022. The unbilled construction amount jumped from 1.04561 trillion won in 2023 to 2.2307 trillion won by the end of September last year. Accounts receivable decreased slightly from 1.8291 trillion won to 1.6235 trillion won but remained in the late 1 trillion won range.
Ultimately, Hyundai Engineering reflected the cost expenses of two major problematic sites in Indonesia and Saudi Arabia in its accounting records at the end of last year.
The $3.9508 trillion-scale 'Indonesia RDMP Balikpapan Refinery' project, for which Hyundai Engineering secured a 70.3% stake in 2018, is currently under construction with a goal of completion in September this year.
However, as of September last year, despite achieving a 89% completion rate, there remained unbilled construction receivables of 119.031 billion won and accounts receivable of 14.9 million won.
Additionally, Hyundai Engineering reflected significant expenses on its accounting records last year for the $1.6442 trillion-scale 'Saudi Jafurah Project Package 2,' which it secured in collaboration with Hyundai E&C.
As of September last year, despite achieving a 75% completion rate for the Saudi Jafurah Project Package 2, Hyundai Engineering held unbilled construction receivables of 59.023 billion won and accounts receivable of 3.142 billion won. This project was secured in 2021 and is aimed for completion in August this year.
Due to the nature of plant projects requiring the purchase of materials in advance, the cost of input expenses was high. Ultimately, combining unbilled construction amounts, accounts receivable, and expenses for purchasing materials resulted in a total loss of 1.22 trillion won.
An industry source noted, 'In plant projects, unlike other constructions, materials must be procured in advance, and because they are not established assets, construction companies must incur substantial costs before the work begins,' adding that 'as the process continues and they receive construction costs from clients, they can recognize this as revenue.'
Securities industry experts predicted that, with past overseas projects awaiting completion this year, a swift recovery in profitability will be challenging.
Heo Jae-jun, a researcher at Samsung Securities, stated, 'Continuing delays in settling claims with clients related to overseas sites since the third quarter of last year suggest that loss of profitability in those sites is expected,' further explaining, 'With poor-margin projects scheduled for completion in the first half of this year, a rapid recovery in overseas site profitability is unlikely for the time being.'
Meanwhile, Hyundai E&C reported a preliminary consolidated performance for last year, showing an operating loss of 1.22 trillion won and a net loss of 736.3 billion won. Revenue increased by 10.3% from the previous year to 32.6944 trillion won, but it turned to a deficit with an operating loss in the trillion won range.