STX banks on expansion through energy, M&As
Chairman Kang drives conglomerate’s growth
By Kim Yoo-chul
STX Group has chalked up remarkable growth through successful mergers and acquisitions (M&A) in the first decade since the first business year of 2001.
The trading and ship building and maintenance conglomerate is seeing another ``brisk decade’’ marked by its expansion in the energy sector plus more M&As.
Chairman Kang Duk-soo has no doubts that the mid-tier conglomerate will grow further.
``The last decade was the time when STX was preparing for global expansion. The next decade will be the period when STX leads the market with improved internal capabilities,’’ Kang said recently.
Kang has significantly helped STX emerge into a top-tier shipbuilder across the globe.
Despite controversy, he led the way to strike sizable M&A deals because he thought they were necessary in securing the groundwork for key businesses.
In 2000 Kang acquired the debt-ridden Ssangyong Heavy for 2 billion won of his own money and changed the name to STX. In 2001 its revenue was 260 billion won. Last year it rose to 26 trillion won.
Now the group has identified resources and energy businesses as its next targets. Kang also said he will seek better M&A chances to maximize synergies with his existing businesses.
Meanwhile, the company is planning to launch Hong Kong’s first South Korean-linked initial public offering (IPO) as part of strategies for raising cash to fund business expansion.
Kang said STX is keen to list its Dalian shipyard operations in China by next March.
``We need a strategic IPO. We will list the shipyard, possibly in Hong Kong, after the value of the Dalian shipyard reaches a desirable level,’’ said Kang.
The Dalian shipyard is widely thought to show significant improvement in profitability this year from the preceding one. But the chairman doubts that its Chinese operation will turn around to profit this year.
``I can confirm that the STX Group will further rise via M&As because that is the right tool for corporate growth,’’ said Kang without naming a list of targets.
Resources and energy businesses
Shipbuilders are shifting their sights to new areas because their shipbuilding-centric business structures are causing a profit drain in accordance with macroeconomic trends.
Kang understands this, pushing STX to look for other money-making sources and he said these are in energy and resources.
The chairman said the conglomerate will spend more on resources and energy businesses as the segments are high value-added and lucrative in nature.
STX is targeting 120 trillion won or some $112 billion by 2020 in terms of the group’s combined sales. Of that total, the resources and energy businesses are expected to account for 30 trillion won.
For 2011 STX is aiming for 30 trillion won in combined sales, while it hopes to receive 39 trillion won worth of ship-related orders, the group said in a statement.
``Chances are high that STX will yield visible returns in resources and energy. We are in the process of executing finely-tuned strategies according to regions and countries,’’ said the chairman.
The charismatic Kang explained that STX sees no big hurdles in exploring and selling natural resources from other countries in global markets.
To achieve the so-called ``2020 vision,’’ he said the group will tap into new business opportunities in Latin America, the Middle East, Africa, Australia and Asia when it comes to shipbuilding, shipping, industrial plants and energy.
Its shipbuilding sector, the current critical cash cow for the company, also targets combined sales of 30 trillion won in China, Europe and South Korea, while its shipping and trading divisions are looking to reap 20 trillion won in revenue by 2020.
``Amid faster industrialization in emerging countries, STX believes that the Middle East, Africa and South America will offer more business opportunities,’’ said the chairman.
STX has a plan to invest in its Brazilian shipyard, which mainly constructs offshore supply vessels.
In offshore facilities, amid the market’s current slowdown, it is planning to chase its bigger rivals from the second quarter, believing that some of its clients are putting greater priorities on product quality.
The firm currently has a so-called ``three pillar production system’’ _ pricey ships such as large container carriers in its South Korean shipyard in Jinhae, less value-added ships such as bulk carriers in China and luxury cruise vessels in Europe.
Ownership
The chairman said he understands recent growing calls over changes in management in owner-controlled conglomerates. However, Kang said that process is time-consuming.
``South Korea’s ownership structure is unique. But I don’t think the so-called `one-man management’ will continue forever.’’
Citing Apple and its chief executive Steve Jobs, he said money is not that important. ``In global markets, the key issue is how to make creative business models.’’
The chairman added, ``If the size of a company expands, then it’s impossible to wholly control the entity even as an owner, even through the controlling of stocks. Eventually, qualified professional executives will have to take over the leadership,’’
Jobs was the man who created the world of smartphones. Apple's strategic iPhones are gaining steady popularity worldwide and its tablet PCs, iPads, are receiving more attention from general consumers than gadget geeks.
``One of the key contributions that Jobs made was to create a new eco-system, giving more business chances to companies involved. STX will also make new markets for corporate sustainability,’’ stressed Kang.
The upbeat business plans come after the global shipbuilding industry is seeing signs of recovery thanks to the rising volume of orders for value-added products and other large-scale carriers amid soaring oil prices.
Market analysts say leading shipbuilders will land more orders this year capitalizing on offshore-related projects and they say South Korean shipbuilders including STX will have a greater competitive edge than their Chinese rivals.
``Let’s see what will happen. I am pretty sure that we will pull through quite nicely,’’ said Kang.
South Korea is home to the world’s top three shipyards of Hyundai Heavy, Daewoo Shipbuilding and Marine Engineering (DSME) and Samsung Heavy, as well as STX.