Korea’s No. 5 builder seeks future growth engines, broaden overseas markets


Korea’s construction companies are stepping up efforts to diversify their project portfolios and client lineups in their quest for stable revenue streams amid economic uncertainties.

Daelim Industrial Co., Korea’s fifth-largest builder, is seeking to lead the industry’s transition with an array of contracts for housing, infrastructure and plants.

Harnessing its technological know-how in dam, bridge, harbor and plant construction, Daelim has been branching out into green energy production, liquefaction and factory operation in recent years.

Daelim said it plans to nurture new technologies such as gas-to-liquids, carbon capture and storage and offshore wind power as its future growth drivers.

Such tactics could help the company hedge risks from a protracted slump in the domestic property market and its cash-strapped affiliates that prompted Daelim to seek financial aid last year, analysts say,

Its overseas orders topped 6 trillion won ($5.3 billion) last year, up a whopping 87.5 percent from a year before. The builder targets 8.1 trillion won for this year.

“A catalog of new deals is expected in March and April, chiefly from Saudi Arabia, Vietnam and the Philippines, which will build fresh momentum for Daelim’s international operations,” said analyst Kim Sun-mi with KTB Investment & Securities.

Power generation has already become a new cash raker. Its experience in numerous gas-fired power stations at home and abroad gives Daelim a competitive position in the engineering, procurement and construction area, company officials say.

EPC is a widely used form of construction order, under which the contractor designs the facility, brings in the raw materials and builds it. The method is increasingly favored by firms across the industry because it boosts productivity and consistency in services while guaranteeing a lucrative lump-sum payment for builders.

To better cope with surging demand in the global energy generation market, the builder said it set up a unit last year that is in sole charge of power equipment and renewable sources.

In 2011, Daelim bagged two EPC contracts for a 1,200 megawatt thermal station in Saudi Arabia and a 200 megawatt coal power plant in the Philippines.

“The $1.22 billion deal with the state-run Saudi Electricity Co. was based on our experience, technology and project management capability in the Middle East’s largest market where top-notch builders are engaged in fierce competition,” a company official said.

Daelim is also among few Korean firms that have managed to operate in the nascent Philippines market, working on a handful of other projects largely for refining and chemicals facilities, he added.

Nonetheless, a prolonged downturn in the domestic real estate market has dampened housing sales and construction in recent years, triggering a string of bankruptcies among mid-size contractors last year.

Among the teetering builders are Korea Development Corp. and Samho International, in both of which Daelim is the largest stakeholder. Daelim also faced a cut in credit rating due to pledged multi-million-dollar support for its subsidiaries.

With creditors having approved a workout plan for KDC, however, Daelim’s valuation discount will narrow this year, according to Samsung Securities.

“We believe the KDC workout will serve to dissipate the risk of Daelim Industrial’s credit rating being cut and reduce the chances of Daelim having to give the subsidiary additional financial support,” said the brokerage’s analyst KS Kang, tagging Daelim’s stocks a “top pick.”

Amid mounting pressure, Daelim has been aggressively tapping new markets abroad to broaden customer bases. Since its inroads into Vietnam in 1966, Daelim has executed a variety of works in 24 countries. The builder became the first Korean company to penetrate the Middle Eastern market in 1974 and Africa in 1975.

This year, Daelim plans to beef up operations in its strongholds like Saudi Arabia and Kuwait and bid for new projects in Southeast Asia and Latin America, vice chairman Kim Yoon said.

“Pioneering new markets and excavating growth engines are our top priority to overcome the local industry’s tether and grow into a global construction firm,” he said.

“Based on our ascendancy in the EPC field, we are planning to venture into other high value-added sectors such as front end engineering design and operation and maintenance.”

By Shin Hyon-hee  (heeshin@heraldcorp.com)