Construction stocks posted the biggest gains on South Korea's stock market in September on expectations that the country's investment projects in the United States will move ahead in earnest. With nuclear plant construction emerging as a candidate alongside gas-fired combined-cycle power plants, order expectations are converging on large builders capable of handling major overseas projects.
The KRX Construction index rose 9.44% between the 1st and the 11th of this month, the biggest gain among KRX sector indexes, the Korea Exchange said on Sept. 14. The KOSPI gained just 1.32% over the same period. Hyundai Engineering & Construction (000720.KS) climbed 9.41%, while Daewoo Engineering & Construction (047040.KS) rose 9.35%, Samsung E&A (028050.KS) 8.28% and GS Engineering & Construction (006360.KS) 6.06%.
Shares were driven higher as the outline of the U.S. investment program took shape. The government is reviewing the Encinal gas-fired combined-cycle power plant in Texas as the first project under its $350 billion investment in the United States, according to sources. The project, with a total cost of $22.3 billion, calls for a 6.3-gigawatt power complex in La Salle County in southern Texas, according to Hana Securities. It would begin with a 1.3-gigawatt simple-cycle plant in the first phase, followed by 1-gigawatt combined-cycle plants in each of the second through sixth phases.
Nuclear power has also emerged as a potential source of additional orders. The final agreement on the U.S. investment package is understood to include plans to build eight nuclear reactors in the United States. The provision, however, is closer to a framework than a specific order or contractor selection. Analysts say investors need to confirm how Korean builders will participate, because order values and profitability could vary widely depending on whether they form joint EPC — engineering, procurement and construction — arrangements with local U.S. firms, whether they serve as lead contractor, and how much equipment they purchase directly.
"We recommend GS Engineering & Construction as our top pick, as it stands to benefit from domestic data center construction, and DL E&C (375500.KS) as our second pick, with 2 trillion won [about $1.4 billion] in data center orders expected in the second half," said Kim Seung-jun, an analyst at Hana Securities. "As for nuclear, we judge that it is not too late to buy at the point when a project owner emerges that will take on the risk and lead the business."
