Namwha benefit from relocation of US forces
By Kim Da-ye
Namwha Construction was founded in 1958 and specialized in constructing ports and bases for the U.S. forces in Korea (USFK).
While most small- and medium-sized construction companies are suffering because of the downturn in the real estate market, Namwha is a stable business that continues to show significant profits. More than 80 percent of its revenue is generated from public sector projects including further work for the USFK.
Headquartered in Hwasoon, South Jeolla Province, the contractor is involved with most construction projects there.
The firm touts a healthy financial structure and a good credit rating. At the end of the first quarter of 2012, it had a debt ratio of 19 percent, 33 billion won in cash and was given an A+ credit rating.
With construction related to the relocation of the Yongsan U.S. Army base from Seoul to Pyeongtaek, Gyeonggi Province, set to pick up this year, the number of contracts and orders Namwha can win are expected to soar.
The relocation of the U.S. military base is a large-scale, long-term project which has total construction costs estimated at between 11 and 13 trillion won.
The site renovation is scheduled to be finish in 2013, buildings will be completed in 2015 and the U.S. Army will move into the new base by 2016.
Construction projects for U.S. military bases have previously generated revenues of about 500 billion won a year, and this is forecast to swell to between 1 and 2 trillion won by 2016. Even after the army moves into the new base, construction companies will be in continuous demand to maintain and repair facilities, offering further opportunities for Namwha.
Namwha has steadily won contracts in this field over the last 30 years, and in 2011, revenue from construction for the USFK shot up 300 percent from a year ago to 20 billion won.
Beginning this year, the firm is expected to consistently register 40 to 50 billion won in sales from this field, which would help the outfit grow considerably in size.
In addition to Namwha’s strong hold on this lucrative market, the company also owns shares in three highly profitable firms ― Namwha Industrials, Hankook Cement & Textile and cable television Gwangju Broacasting.
Namwha Industrials, which operates the Muan Country Club, a 54-hole public golf course, owns real estate assets worth 110 billion won including a plot of land with an official value of 71.8 billion won. The firm has generated average annual revenue of 15 to 20 billion won over the past five years with the high net profit ratio at 40 percent.
Considering that Namwha Construction has a 38.9-percent stake in Namwha Industrials, the construction firm has some 43 billion won in real estate assets alone.
The 430 billion won plus the 6-billion-won book value of its cable television operating subsidiary already surpasses the constructor’s market cap.
The subsidiary with some 150,000 subscribers posted record-high revenue of 18.6 billion won in 2011 but suffered an operating loss because of investment in the transition from analogue to digital broadcasting.
Furthermore, it is possible that Hankook Cement & Textile, whose major shareholder is Namwha Industrials with a 46.1 percent stake, will push forward an initial public offering.
Hankook Cement, which manufactures slag cement and provides it to South Gyeongsang Province, hasn’t recorded a loss since it was acquired by Namwha in 2002.
Daewoo Securities forecasts Namwha to post record earnings ― the sales will soar 20 percent from a year ago to 102 billion won, the operating profit will shoot up 46 percent to 8.7 billion won and the net profit will rise 27 percent to 10.5 billion won.
Considering that the company holds 33.3 billion won in cash and 43 billion won in real estate and Hankook Cement may go public, the firm’s stocks are much undervalued.