HD Hyundai’s ascent driven by visionary spinoff push

Many cast doubts on HD Hyundai Group’s decision to separate its ship maintenance, repair and overhaul (MRO) service in 2016. The move, however, has proved to be a masterstroke in reinvigorating South Korea's No. 1 shipbuilding conglomerate eight years later.

The combined market capitalization of HD Hyundai Group companies topped 50 trillion won ($36.3 billion) for the first time on May 28, elevating the shipbuilding and industrial group to Korea’s sixth-largest conglomerate. It was the ninth largest three years ago.

It also widened the market cap gap further with the country’s No. 7 chaebol Hanwha Group by 11.84 trillion won as of Friday.

The shipbuilding giant’s conquest is largely owed to the stellar performance of its affiliates, HD Hyundai Marine Solution Co. and HD Hyundai Electric Co., industry observers said.

HD Hyundai owns about two dozen affiliates in the shipbuilding, energy, industrial and service sectors.

UNDERDOGS’ REVOLT  

In 2016 when the shipbuilding group was facing one of its worst business years with mounting losses of about 4.86 trillion won, its heir apparent Chung Ki-sun, then the head of the group’s corporate planning division, proposed the separation of the group’s ship MRO and parts businesses.

Even from inside, his suggestion, which would be recorded as the first of its kind in the Korean shipbuilding industry, faced strong opposition because of concerns that the standalone MRO service would not survive in the global ship MRO market already dominated by Singapore-based Seatrium and Dutch conglomerate Damen Group.

But Chung persuaded management to spin off the MRO business in late 2016 and headed up the separated company the following year.

Eight years later, the business has grown into a lucrative company, Hyundai Marine Solution, which is expected to generate 242.5 billion won in operating profit this year on sales of 1.64 trillion won, according to a consensus of the country’s securities firms.

It reported 240.3 billion won in sales in 2017.

Hyundai Marine Solution with mainstay businesses in ship MRO and bunkering has been gradually expanding its footing in the eco-friendly ship upgrade industry.  

Backed by its stellar business performance and successful expansion push, HD Hyundai Marine Solution made its market debut with big fanfare in early May.

Its market value worth about 5.8 trillion won as of Monday is bigger than that of the shipbuilding giant’s holding company HD Hyundai Co.

ANOTHER SUCCESSFUL INDEPENDENCE MOVE

HD Hyundai Electric is another successful spinoff story led by Chung, now president and co-chief executive officer of HD Hyundai. 

The electrical and electronic equipment-making unit left the parent company in April 2017, and its stock price has surged more than tenfold from three years ago, lifting its market cap to 9.37 trillion won.

Its market cap is just behind the group’s No. 1 market cap HD Korea Shipbuilding & Offshore Engineering Co., the group’s intermediary shipbuilding holding company that is the world’s top shipbuilder.

HD Hyundai Electric is riding on the green energy and artificial intelligence boom on top of the growing replacement demand for transformers installed about 20 to 30 years ago.

It has already secured orders for the next five years.

Write to Woo-Sub Kim at duter@hankyung.com

Sookyung Seo edited this article.