STX believes Chinese shipyard will help sales

STX Group and chairman Kang Duk-soo has overseen one of the most explosive growth rates among Korean companies in recent years.Kang has conducted several mergers

and acquisitions to make the group into the country’s 12th largest conglomerate in terms of assets after he purchased Ssangyong Heavy Industries for about 2 billion won ($1.87 million) in May 2001 and renamed it STX.
In an event marking the group’s 10th anniversary this weekend, Kang said the group’s growth over the next 10 years will focus on expansion into the resource and energy sectors, while its operations will be centered on major facilities in Korea, China and Europe.
The Dalian facility will play a major role in STX’s future strategy. With construction beginning in 2007, the STX Dalian Shipbuilding Complex covers a 5.5 million square meter area that was formerly tidal land.
It contains a 460-meter long shipbuilding production facility and 5-kilometer long dry dock, along with 900-ton Goliath cranes.
It is the largest shipyard operated by a Korean company in China. The facility has enjoyed benefits granted by the Chinese government, including giving STX complete ownership of the facility and building a six-lane entry road to the shipyard as a means to boost the growth of the local shipbuilding industry.
Normally, China requires foreign investors to establish a joint venture with local companies for industrial projects. The Dalian yard will likely deliver 31 vessels this year, compared with 22 last year, according to Kang.
Kang said that over the next decade STX plans to expand operations in Latin America, the Middle East, Africa, Australia and other Asian countries.
“We currently have 18 shipyards in eight countries and have the technology to build all types of vessels,” said Kang.
“Since the launch of STX Group a decade ago, our sales have grown by 100-fold, but today will be the last day we talk about our past because what is important now is our future,” Kang told reporters.
Kang said that the shipbuilding and offshore units plan to expand the range of their products. He expected that the trio of facilities in Korea, China and Europe will each account for 10 trillion won in annual sales.
He believes that shipping and trading operations will grow to annual sales of $20 billion based on increased deliveries of resources, while the overseas plant construction business will expand 10-fold to 10 trillion won.
Company officials predicted that shipbuilding orders in the second quarter will increase after a disappointing first quarter.
STX Offshore & Shipbuilding received 10 ship orders valued at $330 million, including bulk ships and liquefied petroleum gas ships, but none for its offshore business in the January-March period. Its local shipbuilding competitors, including Hyundai, Samsung and Daewoo, all received orders in the offshore sector.
“The first quarter orders in shipbuilding and offshore facilities were not as high as we would have liked. But we have no worries because we will soon catch up to our competitors with large deals coming through because there are shipping companies that prefer high quality over price,” said Choo Sung-yob, president and chief operating officer.
Choo added that the shipyard in Brazil will soon be expanded, reflecting the importance of Brazil as a source of resources. The Brazilian government has encouraged the STX expansion plans since it wants to boost the country’s shipbuilding industry.
“In resources and new and renewable energy, we plan to achieve 30 trillion won in sales and 2.4 trillion won in operating profits by 2020 since we feel there are significant opportunities there,” said Kang.
“We feel that we can do effective business in countries that have abundant resources, so we will focus on resources and new and renewable energy in the next ten years.”
Kang said that although the group had announced a sales target of 120 trillion won by 2020 from the 26.5 trillion last year, which would make STX the seventh largest conglomerate in Korea, the ranking is meaningless since STX wants to be considered a global company rather than a Korean one.
To help finance its expansion, Kang said that the group would consider listing its Chinese shipyard in either Hong Kong or Singapore at a future date.
“We are working to improve our core strengths as well as boosting Dalian shipyard’s profitability and sales before seeking an IPO,” Kang said. “We believe there will be a significant change in profitability this year.” STX has already listed its offshore unit in Singapore, while it may also consider initial public offerings for some of its other units.