Korea’s major builders are undergoing two contrasting paths. Some of them have enjoyed handsome gains despite the economic slump, while others are suffering; Hyundai, POSCO rise, while Daelim, GS fall

2014-02-20 17:36

Builders follow contrasting paths

Hyundai, POSCO rise, while Daelim, GS fall
By Yi Whan-woo
Korea’s major builders are undergoing two contrasting paths.
Some of them have enjoyed handsome gains despite the economic slump, while others are suffering from less than expected outcomes from their oversea projects.
They all generally saw their sales increase last year thanks to an increase in overseas projects but the losers either saw operating losses or experienced a sharp fall in profits.
By company, Hyundai Engineering & Construction (E&C) and POSCO E&C have seen their operating profits rise by 4.3 percent and 14.2 percent, respectively, thanks to mega-sized projects overseas.
“A series of project bids we won overseas boosted our profits amid the prolonged slump in the domestic market,” Hyundai E&C said in a statement, Thursday.
The country’s No. 1 builder posted sales of 13.93 trillion won ($13.08 billion) last year, up 4.6 percent from a year earlier. Its operating profits also climbed by 4.3 percent to 792.9 billion won during the same period.
The construction arm of the Hyundai Motor Group attributed its success to “high-quality” projects in terms of bid prices, noting that several Korean builders have suffered losses after winning the overseas projects bids at low costs.
The projects include construction of a $2.06 billion bridge in Kuwait and a $1.5 billion aluminum refinery in Saudi Arabia. The company won the orders for both projects in 2012.
“We could say the orders we won since 2011 are “high-quality” because we won them for a good price. We anticipate they will boost our sales as well as operating profit for the next few years,” it said.
POSCO E&C also said its overseas projects have been crucial for the increase in its profit. The construction unit under POSCO, the world’s fifth largest steelmaker, completed the construction of a steel plant in Indonesia last year and is also currently constructing another one in Brazil.
And the country’s No. 5 market player posted a record-high sale of 8.02 trillion won in 2013, up from 7.04 trillion won a year earlier. Its operating profit also went up by 14.2 percent to 406.6 billion won in the 2012-2013 fiscal year.
“We’re focusing on winning orders abroad and our strategy has boosted us to survive amid the slump in the industry,” it said in a press release.
In contrast, Samsung C&T and Daewoo E&C experienced a decline in their performance as they have set aside more reserves for home-backed loans amid the prolonged slump in the property market in 2013.
The construction arm of the Samsung Group posted sale of 13.4 trillion won in 2013, up 50.3 percent from a year earlier. However, its operating profit also fell by 18.6 percent to 347.6 billion won in the same time period.
“It’s wrong to say our losses came from the plant construction abroad,” the Samsung spokesman said. “The profit fall was mainly due to our sluggish housing business in Korea. But we expect our profit this year will rise.”
A Daewoo E&C spokesman also expressed a similar view.
“Our international business was fine, and our losses took place because we reflected potential losses associated with domestic construction projects in balance sheets,” he said.
The country’s third-ranked Daewoo E&C had its 2013 sale rise 3.5 percent from 2012 to 8.47 trillion won. But it suffered a 119.5 billion won in operating losses.
Daelim Industrial and GS E&C were hit hard by losses from their overseas projects.
The fourth-placed Daelim Industrial saw its operating profit plunge by 92 percent to 39.6 billion won in 2013 although its sales rose 4 percent to 9.84 trillion won.
The country’s No. 6 player GS E&C had a sale of 9.58 trillion won last year, up 3.1 percent from 2012. However, it suffered a 937.2 billion won operating loss in 2013.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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