Lee Chang Keun of Daewoo Securities - an independent Seoul-based financial analyst - is upbeat about the future of Samsung Engineering Company, and with good reason. In early October, the share price of the South Korean firm soared by 15 per cent after it announced to the Seoul stock market that it had been awarded the $500 million main contract to build a worldscale petrochemicals plant at Jubail in Saudi Arabia. Korean investors clearly expect more such announcements to follow.
'The award is significant and it demonstrates the recognition of Samsung Engineering's design and project management skills and its success in securing a firm bridgehead in Saudi Arabia,' says Lee. Awarded by Advanced Polypropylene Company, this latest engineering, procurement and construction (EPC) contract calls for construction of an integrated propane dehydrogenation (PDH)/polypropylene (PP) facility with a capacity of 450,000 tonnes a year (t/y). It is significant that the contract was awarded on a negotiated basis, rather than competitive bidding, but it is not the first major EPC contract Samsung has picked up in the kingdom. In late September, it put pen to paper on a $350 million-400 million order placed by the Eastern Petrochemical Company (Sharq) to build its 700,000-t/y ethylene glycol (EG) plant, also at Jubail. Both projects are part of Samsung Engineering's plan to secure contracts worth a total of $1,800 million in the kingdom for fiscal year 2005/6. With the additional Tasnee cracker award, where basic engineering is under way but the contract is not expected to come into effect until early 2006, the Korean contractor is closing in on its target. Momentum Lee is sanguine about Samsung's success: 'It is sensible to apply a PE [price/earnings] ratio of 13.5 to next year's estimated performance in light of the average share value of global engineering firms,' he says. 'Investors should take note of the momentum of Samsung Engineering's rally in the local bourse.' Unlike the other South Korean EPC contractors which came to the Gulf in the oil-boom era of the 1970s, Samsung Engineering is a relatively late entrant. 'Our first overseas project was in the Far East. We did not think of going beyond,' says HP Kong, senior general manager of overseas business development. However, the scenario changed in 1998, following the economic crisis in the Far East that resulted in a near-moratorium on all major projects. 'We had to look for a new market and approached the Middle East with caution,' says Kong. Samsung opened its first regional office in Dubai in 1998, and, in the following year, it was awarded its first Gulf contract in joint venture (JV) with ABB Lummus Global of the US. Valued at $500 million, the EPC contract was for the construction of a 450,000-t/y PDH/PP plant - the first world-scale facility of its type in the Gulf - for Saudi Polyolefins Company(SPC). Samsung Engineering's experience in building a gas processing and a PE plant in Egypt in 1994/5 came in handy while bidding for the Saudi PDH/PP project. The Korean contractor's success in completing the SPC project on time and on budget proved to be its hallmark for future projects in the kingdom. 'We started bidding actively for Sabic [Saudi Basic Industries Corporation] to build a 130,000 - t/y butene-1 plant and got another job. It was a 20-month contract which we finished nearly three months ahead of schedule,' says Kong. The main reasons for its success, according to Kong, have been its tie-up with competent JV partners, the adoption of a policy of selective bidding and its engineering credentials. 'This [selective bidding] has proved us right. In 2004/05, our winning ratio has been 50 per cent, against the industry average of 15 per cent,' he says. 'We are also the only Korean contractor that has more engineering and procurement rather th