Japanese construction firm Kumagai Gumi Co's stock suffered its biggest fall on Monday in over 13 years. The company's plan to rebuild five apartments has apparently hit hard shares and investors' confidence on the Street.
Tokyo-based Kumagai Gumi Co's stock tumbled 25 percent and was trading 18 percent lower at ¥243 on Tokyo Stock Exchange, the lowest level since November 2002. Kumagai Gum built this residential complex which was sold by Sumitomo Realty Co. in Yokohama in 2003.
Bloomberg reports that lapses in a residential complex comprised of five apartments have made Kumagai Gum Co to rebuilt the apartment building. Subsequently, reinforcing steel in some places was found to be damaging the construction. Kumagai Gumi has agreed to rebuild one of the five apartments and repair the rest. However, the Japanese construction company has commenced the works on rebuilding the entire residential complex. This news affected the investors' confidence on the Street.
The latest situation at Kumagai Gumi is recalling another incident in Yokohama. A residential complex in Yokohama sold by Mitsui Fudosan Co has prompted a probe into construction lapses. It's learnt that some more buildings in the city are also with construction defects.
Daily News further adds that the latest situation has built up pressure on shares of subcontracting companies as well. For instance, shares of Asahi Kasel Corp and Simitomo Mitsui Construction Co dropped in selling pressure. The possibility of similar occurences in the construction sector may impact some other companies' stocks as well.
Kumagai Gumi Co is predicted to get revenues of ¥325 billion for 2015. The net profit margin for fourth quarter of 2015 was 4.63 percent and operating margin was at 7.45 percent. The return on average assets was at 6.79 percent, while return on average equity stood at 5.67 percent. The headcount of Kumagai Gumi is standing at 3,579.
According to data from Reuters, Japanese Kumagai Gumi shares dropped 15.93 percent to ¥248 on Tokyo Stock Exchange on Monday. The market capitalization stands at Yen 93.63 billion and the price-to-earnings (P/E) ratio at the construction company is at 5.97. The 52-week high is ¥411 and low ¥222. The shares were moving in the range of ¥252 and ¥222 on Monday.
Kumagai Gumi is reviewing the current situation carefully as the ongoing crisis may add further to losses. The Japanese construction company already booked contingency reserves of Yen 8.1 billion ($71.4 billion) in 2015. However, Kumagai Gumi is not anticipating any adverse impact from current situation on earnings forecast for 2016.
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