Daelim Industrial, one of Korea’s biggest construction companies, recorded a loss in the fourth quarter of last year due to costs from overseas projects in the Middle East.

The Seoul-based builder’s regulatory filing last week reported an operating loss of 222.7 billion won ($205 billion) in the three months to Dec. 31, an improvement from the 319.5 billion won loss it suffered in the same period the year before.

The company reported a 4.8 percent jump in fourth-quarter sales at 2.55 trillion won but saw a 358.5 billion won net loss, posting a second consecutive quarterly net loss.

Daelim fell back into the red with an annual operating loss of 270.3 billion won, after making a profit the previous year.

“The loss was cause by 400 billion won of additional expenses generated from four Saudi construction sites and one Kuwaiti building site during the fourth quarter,” the company said in the press release.

Persistent labor cost increases and construction delays due to the low productivity of local subcontractors were main cause of the losses, it said.

“The Saudi government’s workforce localization policy, which encourages foreign firms to hire more local workers had a major impact on Korean builders’ performances.”

The company said that the policy caused labor cost increases as Saudi Arabia lacks skilled manpower, and also reduced productivity and increased the occurence of construction defects.

Daelim, however, said it expected to recover to achieve 300 billion won operating profit and annual sales of 9.2 trillion won in the current fiscal year.

Experts warned that such downside risks in Middle Eastern construction markets could spread to other South Korean builders, which heavily depend on contracts in the region.

“It’s not just Daelim’s problem. Firms that have a larger proportion of overseas construction projects are facing the same obstacles,” said Kwon Ki-hyuk, a researcher at the Korea Investors Service.

Daelim plunged 5.8 percent to 53,400 won at the close on the Korea Exchange on Friday.

Amid concerns about overall builders’ margins for overseas projects, GS E&C sank 2.9 percent on the stock market the same day, Samsung Engineering slid 2.95 percent and Hyundai Engineering & Construction fell 0.19 percent.

Stock companies also adjusted target stock prices for Daelim Industrial. Hana Daetoo Securities Bank cut its target stock price to 72,000 won from 90,000 won, citing large losses from overseas projects, while E TRADE Korea revised it down to 57,000 won from 91,000 won, down 37.3 percent.

By Park Han-na (hnpark@heraldcorp.com)