Hyosung, Crying for Chemical-Construction, Laughing for Heavy Industries

[KOREA FINANCIAL TIMES, Gwak Horyung] Hyosung Heavy Industries & Construction's power equipment business reaffirmed its upward trend with improved results. Despite being overshadowed by the construction slump, the heavy industry segment was the most profitable of the group's major businesses with an operating margin of 8.7%.

Hyosung Heavy Industries & Construction posted revenue of KRW 1.19 trillion and operating profit of KRW 62.7 billion in the second quarter of this year. This is a 6.3% increase in revenue from the second quarter of last year, but a 26.8% decrease in operating profit. Operating margin fell 1.4 percentage points from 7.6% to 5.2%.

The decline in profitability was driven by the construction segment, which swung into the red with an operating loss of 2.3 billion won. The company said it recorded a loss due to one-time factors such as a freight labor strike and rising costs, including construction materials.
The heavy industry segment, which has a strong business in high-voltage transformers, mainly in the U.S., posted an operating profit of 65 billion won (8.7% operating margin). This was up 13.8% year-on-year and 80.5% compared to the first quarter of this year.

Orders for power equipment are increasing not only in the U.S. but also in Europe and the Middle East. At the end of the second quarter, new orders in the heavy industry sector amounted to 1.519 trillion won, nearly double the amount in the second quarter of last year. Since the beginning of this year, Hyosung Heavy Industries has announced investments of 100 billion won to expand its ultra-high voltage transformer plants in Changwon, Gyeongnam and Tennessee, USA.

Hyosung Chemical is still in the red in the second quarter of this year, with sales of 754.5 billion won and an operating loss of 50.7 billion won. The loss was lower than last year's second quarter (103.3 billion won), but higher than the first quarter (34.8 billion won).

Hyosung Chemical's flagship product, polypropylene (PP), is experiencing a sales slump due to low-cost production by Chinese companies. The industry expects China's massive PP expansion to continue through next year. Hyosung is looking to sell its lucrative specialty gas (NF3) business for cleaning semiconductors to help it emerge from the financial crisis caused by the recession.

Hyosung TNC, the largest affiliate within Hyosung Group, posted sales of 1.9826 trillion won and operating profit of 84.6 billion won. These figures were up 2.8% and 31.2% year-on-year, respectively. Excluding one-time expenses in the merchant business, the results were largely in line with expectations.
Synthetic fiber spandex, which holds the top global market share, is also showing solid demand growth despite competition from China. According to NH Investment & Securities, Hyosung TNC's spandex selling price fell 4% quarter-on-quarter, but sales volume increased 11% over the same period.

The favorable spandex market is expected to continue this year, but there are concerns that the improvement in profitability will be limited due to rising raw material prices and oversupply.

Gwak Horyung (horr@fntimes.com)