Lotte E&C posts W122.4b in Q2 operating profit, up 230% on-year

Lotte Engineering & Construction posted more than 120 billion won ($84.8 million) in operating profit in the second quarter of this year, cementing its earnings recovery. Following a first-quarter earnings surprise, the company more than doubled its operating profit quarter-on-quarter in the second quarter, demonstrating a qualitative shift in its profit structure and stronger financial health.

According to the Financial Supervisory Service's DART system Wednesday, Lotte E&C recorded consolidated sales of 1.68 trillion won and operating profit of 122.4 billion won in the second quarter. Sales fell 14.1 percent year-on-year, but operating profit jumped 230 percent. The operating profit margin rose to 7.3 percent, up 5.4 percentage points from 1.9 percent a year earlier. Analysts attributed the profit improvement to a strategy of selective order-taking focused on profitability over volume, combined with tighter cost controls.

The decline in the cost ratio — the key driver of the profitability improvement — has been pronounced. After standing at 93.6 percent in the second quarter of last year and 92.8 percent at the end of last year, the ratio fell consecutively to 91.7 percent in the first quarter and 88.8 percent in the second quarter, entering the 80 percent range.

First-half cumulative earnings also grew sharply. Sales for the first half reached 3.28 trillion won, with operating profit of 172.8 billion won. Cumulative operating profit jumped 323 percent — a gain of 131.9 billion won — compared with 40.9 billion won in the same period last year. Strong performance in urban redevelopment and development projects, combined with a portfolio strategy that raised the share of high-margin worksites, drove the improvement. Company-wide cost efficiency efforts also cut first-half selling, general and administrative expenses by 16.8 billion won year-on-year to 148.5 billion won, reducing the fixed-cost burden.

Financial stability indicators also improved. The debt ratio, which stood at 186.7 percent at the end of last year, fell to 168.2 percent in the first quarter and 162.8 percent in the second quarter. Issuances of hybrid securities and growth in retained earnings lifted total equity by 453.6 billion won from the end of last year to 3.62 trillion won. The current ratio rose to 149.8 percent, and cash and cash equivalents increased by 184 billion won from the end of last year to 820.9 billion won.

Contingent liabilities tied to real estate project financing are also shrinking. PF contingent liabilities stood at 2.43 trillion won as of the second quarter, down about 727.6 billion won from the end of last year, aided by the successful conversion of large-scale projects — including the Homeplus Bucheon Sangdong and Dongdaemun stores — to full project financing.

The balance of the "Charlotte Fund," set up to manage PF risk, is also declining. The fund stood at 1.9 trillion won at the time of its 2025 refinancing; repayments of 745.3 billion won have brought the remaining balance to around 1.2 trillion won. Lotte E&C plans to make an additional 320 billion won in repayments before maturity to bring the balance down to the 800 billion won range, then manage it through a maturity extension. The company aims to cut total PF contingent liabilities to the 2.2 trillion won range by the end of this year.

"Selective order-taking based on project viability and cost management efforts have translated into tangible profit generation, and we have stably entered a path toward financial normalization," a Lotte E&C official said. "We will continue to strengthen the foundation for sustainable growth through rigorous risk management and sound business practices."

Meanwhile, Lotte E&C ranked seventh in the Ministry of Land, Infrastructure and Transport's 2026 Construction Capability Assessment, moving up one place from the previous year.