Making 18 Trillion Won Thanks to Samsung and SK Hynix? ... This Stock Is Smiling Behind the Scenes [Weekend Money]

Construction Orders Reach 116 Trillion Won in First Half, Largest in Three Years
Semiconductor Factories and Data Centers Drive Growth
Nuclear Power and LNG Overseas Orders Expected to Materialize in Second Half

In the first half of this year, domestic construction orders amounted to 116 trillion won, a 25.8% increase from a year earlier. This is the highest figure in three years since the first half of 2022. A significant portion of the increased orders came from non-residential buildings, such as semiconductor factories and data centers.

Yurim Song, a researcher at Hanwha Investment & Securities, stated in a report released on the 26th, "At a time when we were waiting for a full recovery of the housing market, the non-residential sector began to show remarkable growth," adding, "The construction industry has entered an unexpected boom period."

Estimated orders for data centers alone: 180 trillion won ... Equivalent to two years' worth of domestic housing orders

By project type, private non-residential construction made the largest contribution, led particularly by orders for factories and warehouses, which reached a record 18.2 trillion won in the first half. The regions receiving the bulk of orders were Yongin and Pyeongtaek, with most of the projects being semiconductor factories.

When Samsung Electronics and SK hynix announced their mid-to-long-term semiconductor facility investment plans on June 29—approximately 2,100 trillion won and 1,100 trillion won, respectively—the construction timeline also advanced. At the Pyeongtaek P5 and P6 sites, the construction plan shifted from building one at a time to constructing both simultaneously, shortening the construction period by 3 to 4 years. The Yongin cluster project was accelerated by 12 years.

The government's plan for building AI data centers, part of its three major mega projects, has also been detailed. For the first phase, 8.4GW—including 1GW in Ulsan (SK), 2.4GW in Donghae (GS), and 1GW in Sejong (Naver)—will begin construction in the first half of 2028, with an additional 10GW to be built by 2035.

Researcher Song estimated the expected order volume at 180 to 190 trillion won for 18.4GW, based on a construction cost of 10 billion won per MW. This amount is equivalent to two years’ worth of domestic housing orders. Construction periods are relatively short at 2 to 3 years, so results quickly reflect on the financial statements.

However, it is not that the housing business for construction companies has deteriorated. Public new housing orders reached 5 trillion won in the first half, a 62% increase compared to a year earlier, and private new housing also rose 6% to 14.8 trillion won. The government’s housing rapid supply plan announced on August 13 includes the additional supply of more than 230,000 households in the metropolitan area and a reduction in the period from public housing site designation to groundbreaking from 68 months to 37 months. This is also expected to act as a positive factor.

However, the housing market situation for construction companies has not worsened. Public new housing orders amounted to 5 trillion won in the first half of the year, an increase of 62% compared to a year ago, and private new housing also increased by 6% to 14.8 trillion won. The government's housing rapid supply plan announced on August 13 includes additional supply of more than 230,000 households in the metropolitan area and reducing the period from public land designation to construction start from 68 months to 37 months. This is also expected to act as a positive factor.

Overseas orders, as of the cumulative total by July, stood at 11.9 billion dollars, down 64% from a year ago. This is largely due to the unusually large contracts signed last year, such as the Czech nuclear power plant (19.6 billion dollars), creating something of an optical illusion. Plans for the second half of the year are already set. In August, Daewoo Engineering & Construction was selected as the preferred bidder for the Papua New Guinea LNG project and received a letter of intent (LOI) for the Mozambique Rovuma LNG project. The company raised its annual order target from 18 trillion won to 27 trillion won. Hyundai Engineering & Construction is also expected to finalize a partial contract for the Palisades SMR (small modular reactor) project by Holtec in the United States in the second half of the year.

Industry rating remains 'Buy'... Core investment point is nuclear power, with Hyundai Engineering & Construction as the top pick

Construction-related stock prices have already increased significantly. The construction sector index has risen 61.6% so far this year, surpassing the KOSPI’s 58.9%. After peaking in early May, it saw a correction of 47% by the end of July, but has rebounded over the past month. The 12-month forward price-to-earnings ratio (P/E ratio, which shows how many times the stock price is to the expected net profit) stands at 9.3, and researcher Song assessed that the price advantage is not particularly large.

Nonetheless, the investment opinion for the construction sector remains ‘Overweight (Positive)’. The reasons are that it is one of the few sectors expected to improve profitability both this year and next, and as the profitability of the housing sector rises and orders increase, sales growth is now becoming visible. This judgment applies not only to large construction firms but also to mid-sized builders and building materials companies across the industry.

The single most important investment point was identified as nuclear power, followed by data centers, semiconductor factories, and LNG. Among individual stocks, Hyundai Engineering & Construction—which is expected to benefit the most from nuclear power—was suggested as the top pick, with GS Engineering & Construction as the second favorite, anticipated to see results improve next year and to secure large-scale data center orders. Attention was also called to Samsung C&T, which is well-positioned to benefit from both nuclear power and data center momentum in addition to intra-group volume. Among small- and mid-cap stocks, HanmiGlobal and GS Engineering & Design (GS S&D) were mentioned.

Regarding data centers, researcher Song commented, "The actual schedule and scale of groundbreaking can be variables affecting earnings estimates," but added, "Even if the housing market does not experience explosive booms, beginning with this year’s record order volume, we expect the order expansion cycle will continue for the next two to three years."

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