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MEEF - Middle East Projects News & Analyses - previous page

GS riding high on plant construction boom

 
GS Engineering & Construction Co. is booming both at home and abroad, especially on rising plant orders from Middle East countries rich with petrodollars.

Apartments and other construction projects accounted for about 30 percent each of GS sales in the first half of this year, while about a quarter came from petrochemical plants.

Since its establishment in 1969, GS Engineering's business areas range from civil engineering, petrochemical plants, wastewater treatment and recycling facilities, to housing and buildings for various functions.


Plants

Thanks to robust demand from the Middle East, petrochemical projects now take up 84 percent of overseas orders won by Korean builders. GS has a lot of muscle in the petrochemical plant sector, with leading technological know-how in oil refining and polyethylene production facilities.

"In addition to petroleum gas refineries, in which we already have a global edge, we will compete aggressively in the market for gas-to-liquid facilities, a 'blue ocean' in the plant sector," said Woo Sang-ryong, head of the GS plant division. GTL is a refinery process to convert natural gas or other gaseous hydrocarbons into longer-chain hydrocarbons.

GS received overseas construction orders worth nearly 1.5 trillion won in the eight months to August, coming second after Hyundai Engineering & Construction Co., according to the International Contractors Association of Korea.

GS signed the largest ever construction deal won abroad by a Korean company to build a 1 trillion won ($1.2 billion) aromatics plant in Oman. It also won a 210 billion won project to build a linear alkylbenzene plant in Egypt.

In Korea, the company agreed to build a heavy oil upgrading unit worth 600 billion won for affiliate GS Caltex Corp. and to develop a plot of land owned by textile manufacturer Kyungbang Co. in western Seoul for another 300 billion won.

The brisk IT industry also helped GS Engineering grow at a rapid pace over the past few years. The builder has received plant orders worth between 1 and 2 trillion won every year from former affiliates. GS built a plant for liquid crystal display used in television flat screen panels in Paju for LG.Phillips LCD Co. It also received orders to build or expand LG Electronics Co.'s European facilities.

Profitability

 
Having posted the highest sales among Korean builders of 5.63 trillion won last year, GS aims at a 60 percent increase to 9 trillion won by 2010. The company's profitability in 2005, however, ranked fourth with 335.5 billion won in operating profit.

This year, GS is focused on making its business more lucrative. "Our motto for the year 2006 is valuable growth through cost innovation," said GS Engineering chief executive Kim Kab-ryul earlier this year. "We will apply the total project management system to all of our work sites by next year to cut unnecessary costs."

The TPMS checks the amount of materials, manpower and time required to build each floor of an apartment through a computerized system and inputs the exact volume on a daily basis to avoid waste. The exact amount of iron rods are ordered and delivered to construction sites everyday while a personal digital assistant scans the bar code attached to each shipment to see where it is needed. It is now hard to find stacks of construction material lying around on GS construction sites, helping reduce accidents and complete projects earlier than scheduled.

Thanks to its efforts, GS Engineering is now considered one of the nation's top yellow chips with a stable financial base and inexpensive stock price. The builder's third-quarter operating profit soared 53.7 percent from a year ago to 143.1 billion won. Foreign investors rushed to buy GS Engineering stocks, pushing its price to above 76,000 won per share last week.

"With the launch of TPMS for cost reduction, GS will better handle inventories," said Good morning Shinhan Securities Co. in a recent report. "The company is expected to enjoy a stable cost to sales ratio of around 87 percent for the next two years and it will continue to collect rising sales from the Middle East, which has transformed it into a seller's market."

Housing

GS is expanding its housing business overseas as well. It received approval from the Vietnamese government earlier this year to develop a new town covering an area of 1 million pyeong (3.3 million square meters) in the southern metropolis of Ho Chi Minh City. The deal was made on the condition that GS builds a road between the airport and downtown for free. Along with other Korean developers of new towns in Vietnam such as POSCO Engineering & Construction Co. and Daewoo Engineering & Construction Co., GS will fund the construction of basic urban facilities ranging from roads, parks and sewage systems.

GS apartment brand "Xi," short for "extra intelligent," has grown into one of Korea's top three in terms of customer awareness and confidence. A recent survey by the Korea Standards Association showed that Xi was the nation's No. 1 apartment brand in customer service. Employing top celebrity actress Lee Young-ae as its advertising model for Xi since its launch in 2002 has been a major benefit. GS erected a large billboard featuring Lee, who is popular in Vietnam for a hit TV series, before it began the new town project in Ho Chi Minh City.

In volume, GS apartment supply at home has continued to surge from 5,242 units in 2002 to 10,886 in 2004. But it dropped to 8,297 units last year as the housing market outside the Seoul Metropolitan Area shrunk after a series of antis peculation measures announced by the government.

By Kim So-hyun - sophie@heraldm.com

 

 

 

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