Korean construction stocks rise on nearing US investment deal

Korean construction stocks have been gaining ground on expectations that nuclear and other power plant projects could be among the first to get underway as part of a $350 billion U.S. investment plan, boosting hopes for new construction orders.

The first project under the plan could take shape as early as this week, with Korea and the United States nearing an agreement. At a ruling party-government meeting earlier this month, the Ministry of Trade, Industry and Resources identified a gas-fired combined-cycle power plant in Encinal, Texas, as a potential first project under the plan.

The Wall Street Journal also recently reported that Seoul and Washington were nearing an agreement on more than $100 billion in U.S. energy investments, including eight nuclear power plants and natural gas projects.

Amid growing optimism over the sector, the KRX Construction Index rose 9.44 percent from Sept. 1 through 11, the strongest gain among the Korea Exchange’s sector indexes and well above the benchmark KOSPI’s 1.32 percent increase over the same period.

The index tracks 16 companies, including Hyundai Engineering & Construction, Samsung E&A and Daewoo Engineering & Construction.

“As Korea will be directly investing in U.S. power infrastructure, Korean companies are likely to play a central role in the supply chains for the projects,” said Jung Hye-jung, an analyst at KB Securities.

But investors may soon have to look beyond the headline numbers. Much of the optimism over the U.S. investment program is already reflected in construction stocks, analysts warn, leaving the market focused on how much work Korean builders actually win and how profitable those contracts prove to be.

“Stock prices are likely to become more sensitive to the actual size of orders and expected profitability as the projects take shape,” said Kim Sun-mi, an analyst at Shinhan Securities.

That will depend in part on how Korean companies fit into the U.S. construction industry.

A Korean builder could take part in a project through a joint engineering, procurement and construction arrangement with a U.S. contractor, for example, rather than serving as the sole contractor. Whether project owners purchase major equipment directly could also determine how much revenue and risk Korean players ultimately accrue.

In this regard, Industry Minister Kim Jung-kwan held talks with U.S. Commerce Secretary Howard Lutnick and other officials in New York last week to finalize the scope, scale and terms of Korea’s planned U.S. investments. Kim is set to present the investment plan to the National Assembly on Thursday.

Once the details of the program are announced, the government is expected to make its first investment later this month.