Hyundai Motor Group, the parent of the country’s two largest carmakers, is turning its eyes outside the boundaries of the automotive business to maintain the growth momentum.
Since breaking away from Hyundai Group founded by Chung Ju-young, Hyundai Motor Group has rapidly expanded its operations to become the world’s fifth-largest automotive group in the world.
Aided by its growing presence in the market and improving quality of their vehicles, the group’s two carmakers Hyundai Motor Co. and Kia Motors Corp. recorded record earnings during the first half of the year, and the companies are also expected to have performed well during the third quarter of the year.
For the first half of the year, Hyundai Motor posted revenues of nearly 18 trillion won ($16 billion), while the operating and net profits came in respectively at 1.56 trillion won and 2.52 trillion won.
Although the carmaker raked in record profits, the company attributes much of the improvements seen this year to passive factors such as the economic recovery, and difficulties experienced by its larger competitors such as GM and Toyota Motor Corp.
In addition, the local currency’s continuing weakness is also thought to have aided overseas sales, figures for which have seen much more significant improvements this year. During the first nine months of the year, Hyundai Motor’s overseas sales increased by 27.4 percent compared to the same period last year, while domestic sales shrank by 3 percent.
Over the same period, Kia Motors’ overseas and domestic sales increased by 51.5 percent and 20.8 percent, respectively.
However, despite increasing sales, Hyundai Motor Group says that the growth rate of its automotive business is slowing.
The profit margins of carmakers have shrunk in response to intensifying competition in the global market, and as the industry is sensitive to changes in exchange rates and raw materials costs and other external factors, carmakers are vulnerable to sudden changes.
In 2005 and 2006, when the won was at its strongest against the dollar in the past decade, Hyundai Motor’s operating profits fell to the lowest levels seen during the period, despite having maintained revenues at similar levels to 2004.
According to the company, the group’s decision to enter the biddings for Hyundai Engineering and Construction is part of its strategy to seek out new revenue sources and to maintain its growth momentum.
“Our automotive business in the global market is stable, but the group needs businesses that can compensate for uncertainties of the industry,” a Hyundai Motor Group official said.
“And now is the right time, when the group is financially stable.”
According to Hyundai Motor Group, the company views the construction sector as an essential part of its future growth.
“The construction business has a higher growth rate than other businesses the group is operating in. In particular, the demand for eco-friendly overseas projects is rising,” a Hyundai Motor Group official said.
“In addition, construction business can compliment the automotive industry’s business cycle and reduce the impact of negative developments.”
With the auto giant apparently having been interested in the construction sector for some time, Hyundai Engineering & Construction appears to be an opportunity the conglomerate can’t afford to miss.
Hyundai Engineering & Construction is the country’s largest construction company, and has been growing at an annual average of 15 percent since the workout process began.
In addition, the company’s 2009 revenues of nearly 9.3 trillion won is equivalent to almost 10 percent of the figure for the entire Hyundai Motor Group recorded in that year, which came in at 94.65 trillion won.
Hyundai Engineering & Construction’s portfolio structure is another factor that has made Hyundai Motor Group show interest in the company.
According to the group, residential properties that are vulnerable to changes in the economy make up relatively small proportion of the builder’s portfolio compared to the competition. In addition, Hyundai E&C’s overseas presence has been expanding with the value of overseas contracts awarded to the company during the first half of the year rising by more than 70 percent from the same period last year.
“The company’s brand value is also receiving increasing recognition, and the proportion of its sales accounted for by overseas projects is expected to increase,” Hyundai Motor Group official said.
“In this, there will be synergy effect with Hyundai Motor Group’s global network. For the group, Hyundai E&C is attractive in terms of both the synergy effect it will create within the group and our future growth strategy.”
By Choi He-suk (email@example.com)