DL E&C's Sluggish Overseas Plant Orders... Gaining Momentum from US-Iran Ceasefire

Overseas Plant Orders Decline for Five Consecutive Years
Selective Order Strategy and Middle East Risks Take a Toll
Emerging as the Biggest Beneficiary Among Builders After Iran Ceasefire

With the end of the war between the United States and Iran, DL E&C is emerging as the biggest beneficiary among companies involved in Middle East reconstruction projects. DL E&C holds the record for the highest number of contracts won in Iran among domestic construction firms and currently operates the only local branch there. As DL E&C continues to face sluggish overseas orders, market attention is focused on whether this ceasefire agreement could serve as a turning point for the company's performance recovery.

According to the Financial Supervisory Service's DART disclosure system on June 20, DL E&C's new overseas plant orders for the first quarter of this year amounted to KRW 141.3 billion on a separate basis. This is a significant increase compared to KRW 49.4 billion in the same period last year, but on an annual basis, orders have been declining each year. DL E&C's overseas plant orders, which reached KRW 2.202 trillion in 2021, fell below the KRW 1 trillion mark in 2023 with KRW 822.2 billion, and shrank further to KRW 288.1 billion last year.

Analysts point to a strategy focused on selective orders for profitability, as well as geopolitical risks, as causes for the decline in orders. DL E&C was the first Korean construction company to enter the Middle Eastern market, but after aggressive bidding led to losses, the company shifted to a strategy centered on selective orders. In the 2010s, DL E&C suffered significant setbacks due to partner company bankruptcies and material supply delays at the Kuwait gas plant and the Sadara petrochemical plant sites, both of which were awarded during that decade. In Iran, after winning a contract worth over KRW 2 trillion to upgrade the Isfahan refinery following the 2015 nuclear agreement, the company terminated the contract due to financing issues when U.S. President Donald Trump’s administration reinstated sanctions. Since then, the company has not secured any new orders in Iran. As of last year, the Middle Eastern market accounted for just 6.6% (about KRW 491.4 billion) of the company's total revenue.

However, there are forecasts that a surge in Iranian infrastructure reconstruction demand following the ceasefire agreement could revitalize Middle Eastern orders. According to Bloomberg, the ceasefire deal reportedly includes the release of frozen Iranian assets and the creation of a USD 300 billion (about KRW 453.57 trillion) investment fund for Iran’s reconstruction. If financial transactions are normalized and reconstruction funds start flowing in, DL E&C—well-versed in the Iranian market—could demonstrate its competitive edge. Since entering Iran in 1975, DL E&C has been awarded 22 projects in the country.

Shin Daehyun, a research analyst at Kiwoom Securities, stated in a report, "Since 1990, DL E&C has secured the most contracts in Iran, with a track record spanning various types of projects, including the South Pars gas field, petrochemical plants, and dams. If Iran’s economic development program accelerates following the ceasefire agreement, the company is expected to win the most contracts among domestic firms."

DL E&C is also closely monitoring the possibility of resuming its local business operations. The company is considering redeploying Korean personnel who had withdrawn early this year and are currently staying in Dubai. A company official said, "Once things are settled, we plan to consider having (Korean employees) return depending on the local situation." However, the official added, "An environment where foreign private capital can participate in development projects needs to be established, and financial sanctions issues remain. Therefore, it is likely to take some time before orders resume."

DL E&C (formerly Daelim Industrial), which secured the contract in 2003, constructed the South Pars gas processing facility in Iran. The Asia Business Daily DB

Nonetheless, DL E&C faces the challenge of maintaining competitiveness against Chinese construction companies, which have dominated the Iranian market. Kim Hwarang, associate research fellow at the Construction Economy Research Institute of Korea, stated, "As of this year, seven out of eight foreign construction companies active in Iran are Chinese. Given that Iran is participating in the Belt and Road Initiative and has established a strategic partnership with China, securing a competitive edge in future bidding against these players will be key."

This content was produced with the assistance of AI translation services.